acceptance

URC 522 Article 6: Sight and Acceptance Documents in Documentary Collections – Explanation

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Explanation of URC 522 Article 6: Sight/Acceptance

Clause 1: “In the case of documents payable at sight the presenting bank must make presentation for payment without delay.”

Explanation: This clause addresses situations where the documents involved in a documentary collection are payable at sight, meaning the payment is due immediately upon the presentation of the documents. The responsibility of the presenting bank is to ensure that these documents are presented to the drawee (the party expected to make payment) as quickly as possible, without unnecessary delays.

Example: Imagine a situation where an exporter ships goods to an importer and sends the related documents (such as the bill of lading and invoice) through the banking channel under a sight draft. The presenting bank, upon receiving these documents, must promptly present them to the importer’s bank or directly to the importer for immediate payment. Any delay in this process could cause financial loss or disrupt the transaction.

Clause 2: “In the case of documents payable at a tenor other than sight the presenting bank must, where acceptance is called for, make presentation for acceptance without delay.”

Explanation: When the documents are not payable immediately (i.e., they are payable at a later date, known as a tenor), and the collection requires acceptance (such as an acceptance of a time draft), the presenting bank must present the documents for acceptance promptly. Acceptance here means the drawee agrees to pay the amount at a future date.

Example: Consider a scenario where an exporter ships goods and the payment terms are 60 days after sight (a time draft). The exporter’s bank sends the documents to the presenting bank. The presenting bank must present these documents to the importer or the importer’s bank for acceptance without delay. The importer, upon acceptance, commits to paying the amount after 60 days.

Clause 3: “Where payment is called for, make presentation for payment not later than the appropriate maturity date.”

Explanation: This clause pertains to situations where the documents are due for payment at a future date, known as the maturity date. The presenting bank must ensure that the documents are presented for payment on or before this maturity date, not afterward. This is crucial to ensure that the payment is made on time, according to the agreed-upon terms.

Example: For instance, if the payment terms are set at 90 days after shipment, the presenting bank must ensure that the documents are presented to the importer’s bank for payment on the 90th day. If the bank delays the presentation and presents the documents on the 95th day, the importer could refuse to pay due to the breach of the agreed terms, leading to potential financial losses for the exporter.

UCP600 Article 6 Explanations – CDCS Guide : Availability, Expiry Date, and Place for Presentation

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UCP600 Article 6: Detailed Explanation with Examples

Clause (a)

Clause:
“A credit must state the bank with which it is available or whether it is available with any bank. A credit available with a nominated bank is also available with the issuing bank.”

Explanation:
This clause requires that the letter of credit (LC) clearly specifies the bank where the credit is available. It could be available with a specific bank (nominated bank) or any bank. If the LC is available with a nominated bank, it also implies that it is available with the issuing bank.

Example:
Suppose an LC issued by ABC Bank in the USA states that it is available with XYZ Bank in the UK. This means that the beneficiary can present the documents to XYZ Bank for payment. However, the beneficiary can also present the documents to ABC Bank directly since the LC is also available with the issuing bank.

Clause (b)

Clause:
“A credit must state whether it is available by sight payment, deferred payment, acceptance, or negotiation.”

Explanation:
The LC must specify the method of payment. It could be one of the following:

  • Sight payment: Immediate payment upon presentation of complying documents.
  • Deferred payment: Payment at a later date, as specified in the LC. In deferred payment terms draft is not presented and instead of draft there will be deferred payment undertaking.
  • Acceptance: The issuing or nominated bank accepts a draft and commits to pay on the maturity date.
  • Negotiation: The nominated bank may purchase the documents (and drafts) and pay immediately, even before the maturity date.

Example:
An LC issued by DEF Bank in Germany specifies that it is available by sight payment. This means that when the beneficiary presents the required documents, the bank must pay them immediately upon verifying that the documents comply with the LC terms.

Clause (c)

Clause:
“A credit must not be issued available by a draft drawn on the applicant.”

Explanation:
The LC cannot require the beneficiary to draw a draft (a bill of exchange) on the applicant (the buyer). This is to ensure that the responsibility for payment lies with the bank and not with the buyer, making the LC a more secure instrument for the beneficiary.

Example:
If GHI Bank in Japan issues an LC for an exporter in India, the LC cannot require the exporter to draw a draft on the buyer in Japan. Instead, the draft must be drawn on the issuing bank (GHI Bank) or a nominated bank.

Clause (d) (i)

Clause:
“A credit must state an expiry date for presentation. An expiry date stated for honour or negotiation will be deemed to be an expiry date for presentation.”

Explanation:
The LC must include a specific expiry date by which the beneficiary must present the documents to the bank. If the expiry date is mentioned for honour (payment) or negotiation, it is considered the expiry date for the presentation of documents as well.

Example:
If an LC issued by JKL Bank in Canada states an expiry date of 31st August 2024 for negotiation, the beneficiary must present the documents by that date to receive payment. This is also considered the last date for presenting the documents, even if not explicitly stated.

Clause (d) (ii)

Clause:
“The place of the bank with which the credit is available is the place for presentation. The place for presentation under a credit available with any bank is that of any bank. A place for presentation other than that of the issuing bank is in addition to the place of the issuing bank.”

Explanation:
This clause clarifies that the place where the credit is available (e.g., a specific bank) is also the place where the documents must be presented. If the credit is available with any bank, documents can be presented at any bank. If the LC allows presentation at a place other than the issuing bank, that place is considered additional, not a replacement.

Example:
An LC issued by MNO Bank in the UAE states that it is available with PQR Bank in Singapore. The place for presentation of documents is PQR Bank in Singapore. However, the documents can also be presented at MNO Bank in the UAE.

Clause (e)

Clause:
“Except as provided in sub-article 29 (a), a presentation by or on behalf of the beneficiary must be made on or before the expiry date.”

Explanation:
The beneficiary or their representative must present the documents by the expiry date mentioned in the LC. If the presentation is made after the expiry date, it may be rejected unless it falls under the exceptions provided in Article 29(a).

Example:
An LC issued by RST Bank in Australia has an expiry date of 15th September 2024. The beneficiary must ensure that the documents are presented to the bank by this date. If the documents are presented on 16th September, they may be rejected.