Can we effect payment before maturity?

PhanThanhNhan · Post by **PhanThanhNhan** » Thu Aug 11, 2011 1:00 am

As per Article 2 UCP600, honour means:
a. to pay at sight if the credit is available by sight payment
b. to incur a deferred payment undertaking and pay at maturity if the credit is available by defered payment
c. to accept a bill of exchange ("draft") drawn by the beneficiary and pay at maturity if the credit is available by acceptance.
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1. So according to UCP600, Can we effect accept due date on 01 October, 2011 but effect payment before that date?
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2. As I am concerned, some beneficiaries and negotiating banks/confirming banks do not like to receive payment before maturity. Can you give me some examples.
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Many thanks and look forward to your answers.

DanielD · Post by **DanielD** » Thu Aug 11, 2011 1:00 am

Why would a prepayment be made before maturity if not requested?
Daniel

NigelHolt · Post by **NigelHolt** » Thu Aug 11, 2011 1:00 am

I am not aware of anything that would stop a bank discharging its obligations in full earlier than it has to. On the other hand, I can well understand other banks being totally confused by receiving payment early, as their processes and procedures will no doubt assume payment only on the due date. However, I would have thought any beneficiary would be pleased to receive early payment.

P.S. An applicant may wish to pay early so as to create 'head room' on their doc. credit line to enable them to issue a fresh doc. credit.
[edited 8/11/2011 2:47:54 PM]

PhanThanhNhan · Post by **PhanThanhNhan** » Fri Aug 12, 2011 1:00 am

So in case the applicant request us to effect payment before maturity, should we ask the negotiating bank/beneficiary for their acceptance? or Can we effect payment before maturity as per applicant's request without asking for their acceptance?

DanielD · Post by **DanielD** » Fri Aug 12, 2011 1:00 am

Jeremy,

Once or twice we have received funds from the issuing bank before maturity but without any deduction (interest, etc...) So no problem with the beneficiary. But I can imagine circumstances where the beneficiairy would not be happy to get a prepayment because he does not agree with the interest rate or because contractual reasons.
Regards
Daniel

EricLONGEPIERRE · Post by **EricLONGEPIERRE** » Tue Aug 30, 2011 1:00 am

Issuing bank has the right to effect payment before maturity and to be released from all of its obligations. Obviously such payment must be made without any deduction of interests/charges for prepayment.

asamaha · Post by **asamaha** » Wed Aug 31, 2011 1:00 am

A Confirming bank that is afraid of not being able to be reimbursed on due date may find it more safe to persuade the beneficiary to claim the payment in advance.
Regards
Antoine Samaha

Bilge · Post by **Bilge** » Fri Sep 09, 2011 1:00 am

Hi, as per trade finance + cost & management accountant, alway welcome inflow and try to delay out flows unless there is no harm.

Normally, this is not frequent situation but if the applicant is sure he will make early settlemnt, he can incorporate some clause in the text of the l/c that incase of early payment we can deduct libor+.... from the early payment.

we have received many l/c with such clauses and they also made early payments.

Regards,
M. Saqib Khan
(m_saqibkhan@hotmail.com)

ChantalDuguay · Post by **ChantalDuguay** » Mon Sep 12, 2011 1:00 am

My only advice as a good practice is to be clear in your instructions that you are prepaying. It can be confusing for a nominated bank to receive the funds with an LC reference prior to the due date. It could question wether it is a mistake from the IB, and if so would the IB request later on the funds back or any interest compensation.

Regards