Banking Rules

URC 522 Article 26: “Advices” – Explanation

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Explanation of URC 522 Article 26 : Advices

Article 26 of URC 522 outlines the responsibilities of collecting banks regarding the provision of advice to the remitting bank during a collection process. Below is a detailed explanation of each clause, including examples for clarity.

a FORM OF ADVICE

“All advices or information from the collecting bank to the bank from which the collection instruction was received, must bear appropriate details including, in all cases, the latter bank’s reference as stated in the collection instruction.”

Explanation:
When a collecting bank provides advice or information to the remitting bank (the bank that issued the collection instruction), it must include specific details. This includes referencing the collection instruction number or any other identifier provided by the remitting bank. The aim is to ensure that the remitting bank can easily match the advice with the original collection instruction.

Example:
If the remitting bank’s reference number on the collection instruction is “RI12345”, the collecting bank’s advice should clearly mention “Reference: RI12345” to ensure proper identification and traceability.

b METHOD OF ADVICE

“It shall be the responsibility of the remitting bank to instruct the collecting bank regarding the method by which the advices detailed in sub-Articles (c)i, (c)ii and (c)iii are to be given. In the absence of such instructions, the collecting bank will send the relative advices by the method of its choice at the expense of the bank from which the collection instruction was received.”

Explanation:
The remitting bank must specify how it prefers to receive advice from the collecting bank. This could be through email, fax, or any other communication method. If the remitting bank does not provide these instructions, the collecting bank can choose the method and the remitting bank will bear any associated costs.

Example:
If the remitting bank specifies that it wants to receive advices via email, the collecting bank should send the advice via email. If no preference is given, the collecting bank might choose to send the advice by post, and the remitting bank will cover the postage cost.

c 1 ADVICE OF PAYMENT

“The collecting bank must send without delay advice of payment to the bank from which the collection instruction was received, detailing the amount or amounts collected, charges and/or disbursements and/or expenses deducted, where appropriate, and method of disposal of the funds.”

Explanation:
Once the collecting bank has received payment, it must promptly notify the remitting bank. This advice should include details such as the collected amount, any charges or expenses deducted, and how the funds were handled (e.g., credited to an account or remitted).

Example:
If the collecting bank collects $10,000 and deducts $100 in charges, it must send an advice to the remitting bank detailing: “Collected Amount: $10,000; Charges Deducted: $100; Net Amount Remitted: $9,900.”

c 2 ADVICE OF ACCEPTANCE

“The collecting bank must send without delay advice of acceptance to the bank from which the collection instruction was received.”

Explanation:
When the collecting bank accepts a collection instruction, it must promptly inform the remitting bank. This advice confirms that the collecting bank has accepted the documents and will proceed as per the instructions.

Example:
If the collecting bank receives documents and accepts them for processing, it must send an immediate notification stating: “Advice of Acceptance: Documents accepted as per collection instruction.”

c 3 ADVICE OF NON-PAYMENT AND/OR NON-ACCEPTANCE

“The presenting bank should endeavour to ascertain the reasons for non-payment and/or non-acceptance and advise accordingly, without delay, the bank from which it received the collection instruction. The presenting bank must send without delay advice of non-payment and/or advice of non-acceptance to the bank from which it received the collection instruction. On receipt of such advice the remitting bank must give appropriate instructions as to the further handling of the documents. If such instructions are not received by the presenting bank within 60 days after its advice of non-payment and/or non-acceptance, the documents may be returned to the bank from which the collection instruction was received without any further responsibility on the part of the presenting bank.”

Explanation:
If a collection fails (either due to non-payment or non-acceptance), the collecting bank must inform the remitting bank immediately, explaining the reasons if possible. The remitting bank should then provide further instructions on how to handle the documents. If no instructions are received within 60 days, the collecting bank can return the documents to the remitting bank without further obligations.

Example:
If the collecting bank is unable to secure payment and/or acceptance, it should notify the remitting bank with details like: “Advice of Non-Payment: Reason – insufficient funds.” If the remitting bank does not respond with further instructions within 60 days, the collecting bank will return the documents to the remitting bank without additional liability.

URR 725 Article 4 & 5 : Honour of a Reimbursement Claim & Responsibility of the Issuing bank – CDCS Guide

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Article 4. Honour of a Reimbursement Claim

“Except as provided by the terms of its reimbursement undertaking, a reimbursing bank is not obligated to honour a reimbursement claim.”

Explanation:
This clause outlines the fundamental principle that a reimbursing bank’s obligation to honour a reimbursement claim is strictly defined by the terms of its reimbursement undertaking. This means that if the conditions specified in the reimbursement undertaking are not met, the reimbursing bank is under no obligation to honour the claim. The reimbursing bank’s role is to disburse funds according to the specific terms outlined in the reimbursement undertaking, which is a formal agreement between the bank and the beneficiary. If those terms are not fulfilled, the bank is not required to make any payment.

Example:
Consider a scenario where an exporter is expecting payment from an importer’s bank through a reimbursing bank. The reimbursement undertaking specifies that the reimbursing bank will only honour claims made within 30 days from the date of shipment. If the claim is presented on the 35th day, the reimbursing bank is not obligated to honour the claim because it does not comply with the terms of the reimbursement undertaking. In this case, the reimbursing bank can rightfully refuse the payment request.

Article 5. Responsibility of the Issuing bank

“The issuing bank is responsible for providing the information required in these rules in both the reimbursement authorization and the credit, and is responsible for any consequences resulting from non-compliance with this provision.”

Explanation:
This clause emphasizes the responsibility of the issuing bank to ensure that all necessary information is accurately provided in both the reimbursement authorization and the credit. The issuing bank must comply with the rules specified under URR 725 when drafting the reimbursement authorization. If the issuing bank fails to provide accurate information or omits essential details, it is held accountable for any adverse consequences arising from such non-compliance. This may include delays in payment, disputes, or financial losses.

Example:
Imagine a situation where an issuing bank authorizes a reimbursement but fails to include critical details like the amount to be reimbursed or the timeframe within which the claim should be presented. If the reimbursing bank or the beneficiary faces any issues due to this lack of information, the issuing bank would be held responsible for the resulting complications. For instance, if the reimbursing bank refuses to honour a claim due to the absence of clear instructions, the issuing bank would be liable for any losses incurred by the beneficiary.

Conclusion:

URR 725 Article 4 sets forth essential guidelines for the honouring of reimbursement claims by reimbursing banks. It clarifies that a reimbursing bank’s obligation to honour such claims is contingent upon strict adherence to the terms of the reimbursement undertaking. Moreover, Article 5 underscores the issuing bank’s duty to furnish accurate and comprehensive information in both the reimbursement authorization and the credit. Any failure to comply with these responsibilities could lead to significant financial and operational repercussions. Understanding these articles is crucial for banks, exporters, and importers involved in international trade transactions.

UCP600 Article 3 Explanation – CDCS Guide: Interpretation

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Clause 1: Article Text: “Where applicable, words in the singular include the plural and in the plural include the singular.”

Explanation: This clause indicates that the interpretation of words in UCP600 should be flexible. If a term is mentioned in the singular, it should be understood to also encompass its plural form, and vice versa, unless the context explicitly requires otherwise.

Example: If a credit refers to “invoice,” it can be understood as referring to one or more invoices, depending on the situation.

Clause 2: Article Text: “A credit is irrevocable even if there is no indication to that effect.”

Explanation: All credits under UCP600 are automatically considered irrevocable, meaning they cannot be amended or canceled without the consent of the beneficiary. This holds true even if the credit document does not explicitly state that it is irrevocable.

Example: If a letter of credit issued by a bank does not mention whether it is revocable or irrevocable, it is to be treated as irrevocable by default.

Clause 3: Article Text: “A document may be signed by handwriting, facsimile signature, perforated signature, stamp, symbol or any other mechanical or electronic method of authentication.”

Explanation: This clause broadens the definition of a “signature” under UCP600. It allows for various forms of signatures, including electronic or mechanical methods, to authenticate documents, provided these are commonly accepted.

Example: An invoice signed with a stamp or an electronic signature is considered valid under UCP600.

Clause 4: Article Text: “A requirement for a document to be legalized, visaed, certified or similar will be satisfied by any signature, mark, stamp or label on the document which appears to satisfy that requirement.”

Explanation: When a document is required to be legalized, certified, or visaed, any apparent mark, stamp, or signature on that document that fulfills the requirement will be accepted as sufficient.

Example: If a bill of lading is required to be certified by a chamber of commerce, a stamp or seal that appears to come from the chamber will satisfy this requirement.

Clause 5: Article Text: “Branches of a bank in different countries are considered to be separate banks.”

Explanation: Under UCP600, each branch of a bank in different countries is treated as an independent entity. This means obligations or actions of one branch do not automatically bind another branch, even if they belong to the same banking institution.

Example: If a credit is issued by the New York branch of a bank, the London branch of the same bank is not bound to honor or amend that credit unless it explicitly agrees to do so.

Clause 6: Article Text: “Terms such as ‘first class’, ‘well known’, ‘qualified’, ‘independent’, ‘official’, ‘competent’ or ‘local’ used to describe the issuer of a document allow any issuer except the beneficiary to issue that document.”

Explanation: Descriptive terms like “first class” or “official” do not restrict the issuer to a specific entity. Any entity, except the beneficiary, that appears to fulfill the description can issue the required document.

Example: If a letter of credit requires a “first-class insurance company” to issue a certificate, any reputable insurance company, other than the beneficiary itself, can issue the certificate.

Clause 7: Article Text: “Unless required to be used in a document, words such as ‘prompt’, ‘immediately’ or ‘as soon as possible’ will be disregarded.”

Explanation: Vague terms such as “prompt” or “immediately” do not have specific deadlines associated with them and therefore are disregarded unless a document explicitly requires their interpretation.

Example: If a credit instructs a shipper to send goods “immediately,” without specifying a date, this term will not be interpreted as imposing a strict deadline under UCP600.

Clause 8: Article Text: “The expression ‘on or about’ or similar will be interpreted as a stipulation that an event is to occur during a period of five calendar days before until five calendar days after the specified date, both start and end dates included.”

Explanation: The phrase “on or about” is interpreted as a flexible time frame, allowing an event to happen within a window of five days before or after the specified date.

Example: If a shipment date is stated as “on or about 10th August,” it will be acceptable if the shipment occurs anytime between 5th August and 15th August.

Clause 9: Article Text: “The words ‘to’, ‘until’, ’till’, ‘from’ and ‘between’ when used to determine a period of shipment include the date or dates mentioned, and the words ‘before’ and ‘after’ exclude the date mentioned.”

Explanation: This clause clarifies how specific prepositions should be interpreted concerning dates. If a credit mentions a period “from 1st August to 10th August,” both the start and end dates are included. Conversely, if it says “before 10th August,” the 10th is excluded.

Example: If a letter of credit states “shipment from 1st August to 10th August,” the shipment can occur on either 1st August or 10th August, or any day in between. But if it states “shipment before 10th August,” the latest acceptable shipment date is 9th August.

Clause 10: Article Text: “The words ‘from’ and ‘after’ when used to determine a maturity date exclude the date mentioned.”

Explanation: When determining a maturity date, the terms “from” and “after” exclude the starting date.

Example: If a bill of exchange is payable 30 days “from 1st August,” the due date would be 31st August, excluding 1st August from the calculation.

Clause 11: Article Text: “The terms ‘first half’ and ‘second half’ of a month shall be construed respectively as the 1st to the 15th and the 16th to the last day of the month, all dates inclusive.”

Explanation: The term “first half” of a month refers to the period from the 1st to the 15th, while “second half” refers to the 16th to the last day, including all these dates.

Example: If a letter of credit requires shipment in the “first half of August,” it means the shipment should occur between 1st and 15th August.

Clause 12: Article Text: “The terms ‘beginning’, ‘middle’ and ‘end’ of a month shall be construed respectively as the 1st to the 10th, the 11th to the 20th and the 21st to the last day of the month, all dates inclusive.”

Explanation: The terms “beginning,” “middle,” and “end” of a month are clearly defined periods. “Beginning” is from the 1st to the 10th, “middle” from the 11th to the 20th, and “end” from the 21st to the last day.

Example: If a letter of credit specifies shipment in the “middle of August,” the acceptable shipment dates would be from 11th to 20th August.