claiming bank

URR 725 Article 10: Standards for a Reimbursement Claim – CDCS Guide

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Article 10. Standards for a Reimbursement Claim – URR 725

Clause a:

“The claiming bank’s claim for reimbursement:
i. must be in the form of a teletransmission, unless specifically prohibited by the reimbursement authorization, or an original letter. A reimbursing bank has the right to request that a reimbursement claim be authenticated and, in such case, the reimbursing bank shall not be liable for any consequences resulting from any delay incurred. If a reimbursement claim is made by teletransmission, no mail confirmation is to be sent. In the event such a mail confirmation is sent, the claiming bank will be responsible for any consequences that may arise from a duplicate reimbursement;”

Explanation:
This clause specifies the form in which a reimbursement claim must be made. The claim should primarily be sent via teletransmission (e.g., SWIFT message), unless the reimbursement authorization specifies otherwise, such as requiring an original letter. The reimbursing bank may request authentication of the claim, and any delays caused by this authentication process will not be the reimbursing bank’s responsibility. Additionally, if the claim is sent via teletransmission, no further mail confirmation should be sent, as it could lead to duplicate reimbursements, for which the claiming bank would be responsible.

Example:
If Bank A (the claiming bank) submits a reimbursement claim via SWIFT to Bank B (the reimbursing bank), and Bank B requests authentication, any delay due to this process would not be Bank B’s responsibility. Moreover, if Bank A accidentally sends a mail confirmation of the SWIFT claim, leading to a duplicate payment, Bank A would bear the consequences.

“ii. must clearly indicate the credit number and the issuing bank (and reimbursing bank’s reference number, if known);”

Explanation:
The claim must include clear and specific details such as the credit number associated with the reimbursement request, the name of the issuing bank, and if known, the reference number of the reimbursing bank. This ensures the reimbursing bank can accurately identify and process the claim without confusion.

Example:
Bank A submits a claim that includes the credit number “LC12345,” the issuing bank’s name “XYZ Bank,” and the reimbursing bank’s reference number “RB67890.” This information helps Bank B accurately process the reimbursement.

“iii. must separately stipulate the principal amount claimed, any additional amount due, and charges;”

Explanation:
The claiming bank must itemize the reimbursement claim by separately stating the principal amount being claimed, any additional amounts that may be due (such as interest or fees), and any applicable charges. This transparency helps the reimbursing bank understand the components of the claim.

Example:
Bank A submits a reimbursement claim with the following breakdown:

  • Principal Amount: $100,000
  • Additional Amount Due (Interest): $500
  • Charges: $200
    This detailed breakdown allows Bank B to process each component correctly.

“iv. must not be a copy of the claiming bank’s advice of payment, deferred payment, acceptance, or negotiation to the issuing bank;”

Explanation:
The reimbursement claim must be a distinct document and not merely a copy of the claiming bank’s communication to the issuing bank regarding payment, deferred payment, acceptance, or negotiation. This ensures that the reimbursing bank receives a formal and specific request for reimbursement.

Example:
Bank A, after negotiating documents, sends an advice to the issuing bank. The reimbursement claim sent to Bank B must be a separate document, specifically outlining the reimbursement request, and not just a copy of the advice sent to the issuing bank.

“v. must not include multiple reimbursement claims under one teletransmission or letter;”

Explanation:
A single teletransmission or letter must only contain one reimbursement claim. This avoids confusion and ensures that each claim is processed individually.

Example:
If Bank A has two separate reimbursement claims, one for $50,000 and another for $70,000, it must send these as two separate SWIFT messages or letters to Bank B, rather than combining them into one.

“vi. must, in the case of a reimbursement undertaking, comply with the terms and conditions of the reimbursement undertaking.”

Explanation:
If the reimbursement claim is made under a reimbursement undertaking, it must strictly adhere to the terms and conditions outlined in that undertaking. Failure to comply could lead to the rejection of the claim.

Example:
If a reimbursement undertaking specifies that the claim must be submitted within 10 days of shipment, Bank A must ensure that its claim adheres to this condition when submitting it to Bank B.

Clause b:

“When a time draft is to be drawn on the reimbursing bank, the claiming bank must forward the draft with the reimbursement claim to the reimbursing bank for processing, and include the following in its claim:
i. general description of the goods, services or performance;
ii. country of origin;
iii. place of destination or performance;
and if the transaction covers the shipment of merchandise,
iv. date of shipment;
v. place of shipment.”

Explanation:
When a time draft is involved, the claiming bank must include the draft with the reimbursement claim and provide specific details about the transaction. This includes a general description of the goods or services, the country of origin, the destination or place of performance, and for merchandise shipments, the date and place of shipment. These details help the reimbursing bank verify the legitimacy of the claim.

Example:
Bank A submits a time draft to Bank B with the following details:

  • Goods: Electronics
  • Country of Origin: Japan
  • Place of Destination: New York, USA
  • Date of Shipment: August 1, 2024
  • Place of Shipment: Tokyo, Japan
    This information helps Bank B process the time draft accurately.

Clause c:

“A reimbursing bank assumes no liability or responsibility for any consequences that may arise out of any non-acceptance or delay of processing should the claiming bank fail to follow the provisions of this article.”

Explanation:
If the claiming bank fails to adhere to the provisions outlined in Article 10, the reimbursing bank is not liable for any consequences, such as non-acceptance or delays in processing the claim. This clause protects the reimbursing bank from potential errors or omissions made by the claiming bank.

Example:
If Bank A fails to provide the correct credit number in its claim, resulting in a processing delay, Bank B is not responsible for any issues that arise due to this delay.

URR 725 Article 9: Reimbursement Undertaking – CDCS Guide

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Article 9. Reimbursement Undertaking

Clause (a):

“In addition to the requirements of subArticles 6 (a), (b), and (c) of these rules, a reimbursement authorization authorizing or requesting the issuance of a reimbursement undertaking must comply with the provisions of this article.”

Explanation:
This clause emphasizes that when a reimbursement authorization is made, it must adhere not only to the basic requirements laid out in subArticles 6(a), (b), and (c) of URR 725 but also to the specific provisions detailed in Article 9. This ensures a consistent and standardized process across all reimbursement undertakings.

Example:
If Bank A (the issuing bank) requests Bank B (the reimbursing bank) to issue a reimbursement undertaking to Bank C (the claiming bank), the request must include all necessary details such as the credit number, currency, and amount, as well as compliance with the previously mentioned subArticles.

Clause (b):

“An authorization or request by the issuing bank to the reimbursing bank to issue a reimbursement undertaking is irrevocable (“Irrevocable reimbursement authorization”) and must (in addition to the requirement of Article 1 for incorporation of reference to these rules) contain the following: i. credit number; ii. currency and amount; iii. additional amounts payable and tolerance, if any; iv. full name and address of the claiming bank to which the reimbursement undertaking should be issued; v. latest date for presentation of a claim, including any usance period; vi. parties responsible for charges (claiming bank’s and reimbursing bank’s charges and reimbursement undertaking fee) in accordance with Article 16 of these rules.”

Explanation:
This clause highlights that the request from the issuing bank to the reimbursing bank to issue a reimbursement undertaking is irrevocable. It cannot be canceled or altered without the consent of all involved parties. The request must include specific details such as the credit number, amount, name of the claiming bank, and the deadline for claim presentation. Additionally, it should specify who will bear the charges involved.

Example:
Bank A authorizes Bank B to issue a reimbursement undertaking to Bank C. This authorization is irrevocable and must include details like the credit number, the amount (e.g., USD 500,000), and the name and address of Bank C. It should also state that the latest date for presenting a claim is 30 days from the shipment date, and indicate whether the claiming bank or the reimbursing bank is responsible for the charges.

Clause (c):

“If the Reimbursing bank is requested to accept and pay a time draft, the irrevocable reimbursement authorization must also indicate the following, in addition to the information contained in (b) above: i. tenor of draft to be drawn; ii. drawer; iii. party responsible for acceptance and discount charges, if any. An issuing bank should not require a sight draft to be drawn on the reimbursing bank.”

Explanation:
This clause applies when the reimbursing bank is requested to accept and pay a time draft. The reimbursement authorization must specify additional details like the tenor of the draft, the drawer, and who will bear the acceptance and discount charges. The clause also advises against requiring a sight draft on the reimbursing bank, as it goes beyond the standard practice.

Example:
If Bank A asks Bank B to accept and pay a time draft from Bank C, the authorization must mention that the draft is to be paid 60 days after the sight and indicate that Bank C is the drawer. It must also clarify whether Bank C or another party is responsible for any discount charges that might apply.

Clause (d):

“If the reimbursing bank is authorized or requested by the issuing bank to issue its reimbursement undertaking to the claiming bank but is not prepared to do so, it must so inform the issuing bank without delay.”

Explanation:
If the reimbursing bank is not willing or able to issue the reimbursement undertaking requested by the issuing bank, it must promptly notify the issuing bank. This ensures clear communication and avoids delays or misunderstandings.

Example:
Bank B, upon receiving a request from Bank A to issue a reimbursement undertaking to Bank C, finds that it cannot comply with the request due to internal policies. Bank B must immediately inform Bank A of its inability to fulfill the request.

Clause (e):

“A reimbursement undertaking must indicate the terms and conditions of the undertaking and: i. the credit number and name of the issuing bank; ii. the currency and amount of the reimbursement authorization, iii. additional amounts payable and tolerance, if any; iv. the currency and amount of the reimbursement undertaking; v. the latest date for presentation of a claim, including any usance period; vi. the party to pay the reimbursement undertaking fee, if other than the issuing bank. The reimbursing bank must also include its charges, if any, that will be deducted from the amount claimed.”

Explanation:
This clause specifies the essential information that must be included in a reimbursement undertaking. It should clearly state the terms, including the credit number, currency, amount, and the deadline for claims. If any party other than the issuing bank is responsible for the reimbursement undertaking fee, it must be stated. Additionally, the reimbursing bank should disclose any charges that will be deducted from the claim amount.

Example:
Bank B issues a reimbursement undertaking to Bank C for USD 500,000, referencing credit number 12345 issued by Bank A. The reimbursement undertaking specifies that the latest date for claim presentation is 30 days after shipment, and that Bank C is responsible for a fee of USD 500, which will be deducted from the claimed amount.

Clause (f):

“If the latest date for presentation of a claim falls on a day on which the reimbursing bank is closed for reasons other than those referred to in Article 15, the latest date for presentation of a claim shall be extended to the first following banking day.”

Explanation:
If the last date for presenting a claim falls on a day when the reimbursing bank is unexpectedly closed (e.g., due to a local holiday or other unplanned closure), the deadline is automatically extended to the next business day. This ensures that the claiming bank is not penalized for circumstances beyond its control.

Example:
The latest date for claim presentation is December 25th, but this falls on a public holiday in the country where Bank B (the reimbursing bank) is located. The deadline is then extended to December 26th, the next business day.

Clause (g):

“A reimbursing bank is irrevocably bound to honour a reimbursement claim as of the time it issues the reimbursement undertaking.”

Explanation:
Once the reimbursing bank issues a reimbursement undertaking, it is irrevocably obligated to honor any valid reimbursement claims. This means the reimbursing bank cannot back out or refuse payment once the undertaking has been issued.

Example:
Bank B issues a reimbursement undertaking to Bank C for USD 500,000. Bank C submits a claim as per the terms of the reimbursement undertaking. Bank B is legally bound to honor this claim and make the payment to Bank C.

Clause (h):

“i. An irrevocable reimbursement authorization cannot be amended or cancelled without the agreement of the reimbursing bank. ii. When an issuing bank has amended its irrevocable reimbursement authorization, a reimbursing bank that has issued its reimbursement undertaking may amend its undertaking to reflect such amendment. If a reimbursing bank chooses not to issue its reimbursement undertaking amendment, it must so inform the issuing bank without delay. iii. An issuing bank that has issued its irrevocable reimbursement authorization amendment shall be irrevocably bound as of the time of its advice of the irrevocable reimbursement authorization amendment. iv. The terms of the original irrevocable reimbursement authorization (or an authorization incorporating previously accepted irrevocable reimbursement authorization amendments) will remain in force for the reimbursing bank until it communicates its acceptance of the amendment to the issuing bank. v. A reimbursing bank must communicate its acceptance or rejection of an irrevocable reimbursement authorization amendment to the issuing bank. A reimbursing bank is not required to accept or reject an irrevocable reimbursement authorization amendment until it has received acceptance or rejection from the claiming bank to its reimbursement undertaking amendment.”

Explanation:
This clause deals with the amendment or cancellation of an irrevocable reimbursement authorization. Such changes cannot be made without the agreement of the reimbursing bank. If the issuing bank amends its authorization, the reimbursing bank may choose to amend its reimbursement undertaking accordingly, but it must notify the issuing bank if it decides not to do so. The issuing bank is bound by its amendment once it has been advised, and the original terms remain in effect until the reimbursing bank accepts the amendment. The reimbursing bank must communicate its decision regarding the amendment, but it is not obligated to do so until it hears back from the claiming bank.

Example:
Bank A amends its irrevocable reimbursement authorization by extending the claim deadline. Bank B, which issued the reimbursement undertaking based on the original terms, must decide whether to accept the amendment. If Bank B chooses not to amend its undertaking, it must inform Bank A. Bank A is bound by the new terms as soon as it advises Bank B, but Bank B will continue to follow the original terms until it accepts the amendment.

Clause (i):

“i. A reimbursement undertaking cannot be amended or cancelled without the agreement of the reimbursing bank. ii. A reimbursement undertaking amendment is binding on the reimbursing bank as of the time it is issued. iii. The original terms of the reimbursement undertaking (or a reimbursement undertaking incorporating previously accepted amendments) will remain in force for the claiming bank until it communicates its acceptance of the reimbursement undertaking amendment to the reimbursing bank. iv. A claiming bank must communicate its acceptance or rejection of a reimbursement undertaking amendment to the reimbursing bank without delay.”

Explanation:
This clause focuses on the amendment or cancellation of a reimbursement undertaking itself. Any such changes require the agreement of the reimbursing bank. Once the amendment is issued, it becomes binding on the reimbursing bank. The original terms remain in force until the claiming bank accepts the amendment. The claiming bank is required to promptly communicate its acceptance or rejection of the amendment to the reimbursing bank.

Example:
Bank B amends its reimbursement undertaking to change the payment terms. This amendment is binding on Bank B as soon as it is issued. However, Bank C (the claiming bank) must accept the amendment for it to take effect. Until Bank C communicates its acceptance, the original terms remain valid.

 

URR 725 Article 2: Definitions – Detailed Explanation with Examples – CDCS Guide

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Explanation of URR 725 Article 2 : Definitions

For the purpose of these rules, the following terms shall have the meaning specified in this article and may be used in the singular or plural as appropriate:

a. “Issuing bank” means the bank that has issued a credit and the reimbursement authorization under that credit.

Explanation: The issuing bank is the financial institution that initiates a letter of credit (LC) and provides a reimbursement authorization under that credit. This bank is responsible for ensuring that the terms of the LC are met and that the funds are available for the reimbursement to the bank that honors the credit.

Example: If Bank A issues a letter of credit for a buyer in Country X, Bank A is the issuing bank. Bank A also provides a reimbursement authorization to Bank B (the reimbursing bank) to pay the bank (the claiming bank) that presents a valid claim under the letter of credit.

b. “Reimbursing bank” means the bank instructed or authorized to provide reimbursement pursuant to a reimbursement authorization issued by the issuing bank.

Explanation: The reimbursing bank is the bank that receives instructions from the issuing bank to pay the claiming bank upon receipt of a valid reimbursement claim. The reimbursing bank acts as an intermediary between the issuing bank and the claiming bank.

Example: If Bank A (the issuing bank) instructs Bank B to pay Bank C upon the presentation of a valid reimbursement claim, Bank B is the reimbursing bank.

c. “Reimbursement authorization” means an instruction or authorization, independent of the credit, issued by an issuing bank to a reimbursing bank to reimburse a claiming bank or, if so requested by the issuing bank, to accept and pay a time draft drawn on the reimbursing bank.

Explanation: A reimbursement authorization is a separate instruction from the issuing bank to the reimbursing bank, directing the latter to reimburse the claiming bank. This authorization is independent of the letter of credit and can also involve accepting and paying a time draft drawn on the reimbursing bank.

Example: Bank A issues a letter of credit and separately authorizes Bank B (the reimbursing bank) to pay Bank C (the claiming bank) upon the presentation of the required documents. This instruction from Bank A to Bank B is the reimbursement authorization.

d. “Reimbursement Amendment” means an advice from the issuing bank to a reimbursing bank stating changes to a reimbursement authorization.

Explanation: A reimbursement amendment is a notice from the issuing bank to the reimbursing bank that modifies the original reimbursement authorization. This amendment may involve changes in terms, conditions, or instructions provided earlier.

Example: If Bank A initially authorized Bank B to reimburse Bank C upon presentation of specific documents, but later needs to change the amount or conditions, Bank A will issue a reimbursement amendment to Bank B.

e. “Claiming Bank” means a bank that honours or negotiates a credit and presents a reimbursement claim to the reimbursing bank. “Claiming Bank” includes a bank authorized to present a reimbursement claim to the reimbursing bank on behalf of the bank that honours or negotiates.

Explanation: The claiming bank is the financial institution that pays or negotiates under the letter of credit and then seeks reimbursement from the reimbursing bank. This term also applies to any bank authorized to claim reimbursement on behalf of the bank that made the payment.

Example: Bank C negotiates a letter of credit and subsequently presents a reimbursement claim to Bank B (the reimbursing bank) for payment. Bank C is the claiming bank.

f. “Reimbursement Claim” means a request for reimbursement from the claiming bank to the reimbursing bank.

Explanation: A reimbursement claim is a formal request made by the claiming bank to the reimbursing bank, asking for the payment of funds as per the reimbursement authorization.

Example: After Bank C honors a letter of credit, it sends a reimbursement claim to Bank B (the reimbursing bank) to receive payment for the amount disbursed under the credit.

g. “Reimbursement undertaking” means a separate irrevocable undertaking of the reimbursing bank, issued upon the authorization or request of the issuing bank, to the claiming bank named in the reimbursement authorization, to honour that bank’s reimbursement claim, provided the terms and conditions of the reimbursement undertaking have been complied with.

Explanation: A reimbursement undertaking is an irrevocable commitment made by the reimbursing bank, at the request of the issuing bank, to honor the claiming bank’s reimbursement claim. This undertaking is independent and ensures that the claiming bank will be paid if the conditions are met.

Example: Bank B, acting as the reimbursing bank, issues a reimbursement undertaking to Bank C, promising to pay the claim made by Bank C under the letter of credit, provided all terms and conditions are fulfilled.

h. “Reimbursement undertaking amendment” means an advice from the reimbursing bank to the claiming bank named in the reimbursement authorization stating changes to a reimbursement undertaking.

Explanation: A reimbursement undertaking amendment is a notification from the reimbursing bank to the claiming bank, informing it of any changes to the original reimbursement undertaking.

Example: If Bank B (the reimbursing bank) needs to alter the terms of the reimbursement undertaking issued to Bank C (the claiming bank), Bank B will send a reimbursement undertaking amendment to Bank C.

i. For the purpose of these rules, branches of a bank in different countries are considered to be separate banks.

Explanation: Under these rules, different branches of the same bank located in various countries are treated as separate legal entities or banks.

Example: If a bank with branches in both Country X and Country Y is involved in a transaction under URR725, the branch in Country X is considered a separate bank from the branch in Country Y.

UCP600 Article 13 Explanation – CDCS Guide: Bank-to-Bank Reimbursement Arrangements

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Clause 13(a):

Clause: “If a credit states that reimbursement is to be obtained by a nominated bank (“claiming bank”) claiming on another party (“reimbursing bank”), the credit must state if the reimbursement is subject to the ICC rules for bank-to-bank reimbursements in effect on the date of issuance of the credit.”

Explanation: This clause mandates that if a letter of credit specifies that a nominated bank will claim reimbursement from a reimbursing bank, it must also specify whether this reimbursement follows the ICC rules for bank-to-bank reimbursements effective at the time of the credit issuance.

Example: A letter of credit issued on January 1, 2024, instructs Bank A (nominated bank) to claim reimbursement from Bank B (reimbursing bank). The credit must state that reimbursement is subject to ICC rules for bank-to-bank reimbursements effective on January 1, 2024.

Clause 13(b)(i):

Clause: “If a credit does not state that reimbursement is subject to the ICC rules for bank-to-bank reimbursements, the following apply: i. An issuing bank must provide a reimbursing bank with a reimbursement authorization that conforms with the availability stated in the credit. The reimbursement authorization should not be subject to an expiry date.”

Explanation: If the credit does not refer that the reimbursement is subject to ICC rules, then mentioned rules will be applicable like- the issuing bank must issue a reimbursement authorization to the reimbursing bank that matches the terms of the credit’s availability. This authorization should not expire.

Example: If a credit is available by sight payment and does not mention ICC rules for reimbursement, the issuing bank must provide a reimbursement authorization to the reimbursing bank that allows sight payment and does not have an expiry date.

Clause 13(b)(ii):

Clause: “A claiming bank shall not be required to supply a reimbursing bank with a certificate of compliance with the terms and conditions of the credit.”

Explanation: The claiming bank is not obliged to provide the reimbursing bank with a certificate proving compliance with the credit’s terms and conditions.

Example: Bank A, the claiming bank, does not need to submit a certificate to Bank B, the reimbursing bank, verifying that all terms and conditions of the letter of credit have been met.

Clause 13(b)(iii):

Clause: “An issuing bank will be responsible for any loss of interest, together with any expenses incurred, if reimbursement is not provided on first demand by a reimbursing bank in accordance with the terms and conditions of the credit.”

Explanation: If the reimbursing bank fails to reimburse on the first demand as per the credit’s terms, the issuing bank is liable for any resulting loss of interest and expenses.

Example: If Bank B fails to reimburse Bank A on the first demand, and Bank A incurs additional interest and expenses, the issuing bank must cover these costs.

Clause 13(b)(iv):

Clause: “A reimbursing bank’s charges are for the account of the issuing bank. However, if the charges are for the account of the beneficiary, it is the responsibility of an issuing bank to so indicate in the credit and in the reimbursement authorization. If a reimbursing bank’s charges are for the account of the beneficiary, they shall be deducted from the amount due to a claiming bank when reimbursement is made. If no reimbursement is made, the reimbursing bank’s charges remain the obligation of the issuing bank.”

Explanation: The issuing bank generally bears the reimbursing bank’s charges unless the credit specifies they are for the beneficiary’s account. If the beneficiary is responsible, this must be stated in the credit and reimbursement authorization, and charges will be deducted from the claiming bank’s reimbursement. If reimbursement is not made, the issuing bank must still cover the charges.

Example: If Bank A’s charges are to be borne by the beneficiary, this must be indicated in the credit. When Bank B reimburses Bank A, it deducts its charges from the amount. If Bank B does not reimburse, the issuing bank must pay Bank B’s charges.

Clause 13(c):

Clause: “An issuing bank is not relieved of any of its obligations to provide reimbursement if reimbursement is not made by a reimbursing bank on first demand.”

Explanation: The issuing bank remains responsible for reimbursement even if the reimbursing bank fails to reimburse on the first demand.

Example: If Bank B fails to reimburse Bank A on first demand, the issuing bank will be responsible to make reimbursement to Bank A .