URC 522

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.

URC 522: Articles 24 and 25 : “Protest”, “Case-Of-Need” – Explanation

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Article 24: Protest

“The collection instruction should give specific instructions regarding protest (or other legal process in lieu thereof), in the event of non-payment or non-acceptance.”

Explanation:
This clause mandates that the collection instruction must include clear guidelines on what should be done if the payment is not made or the document is not accepted. If there are specific instructions for handling such situations, they must be detailed in the collection instruction to ensure proper legal recourse.

Example:
Imagine a company, ABC Ltd., issues a collection instruction for a trade document, instructing the bank to collect payment from XYZ Ltd. If XYZ Ltd. fails to pay or accept the document, ABC Ltd.’s instruction should specify whether the bank should protest the non-payment legally. If ABC Ltd. states, “In case of non-payment, protest the document at the chamber of commerce,” the bank follows this instruction. Without such specific instructions, the bank isn’t obligated to take any legal action.

“In the absence of such specific instructions, the banks concerned with the collection have no obligation to have the document(s) protested (or subjected to other legal process in lieu thereof) for non-payment or non-acceptance.”

Explanation:
If the collection instruction does not provide specific instructions for protest or legal action, the banks involved are not required to take any action in the event of non-payment or non-acceptance.

Example:
If ABC Ltd. does not specify any instructions regarding protest or legal processes, and XYZ Ltd. fails to make payment or accept the document, the bank is not obligated to initiate any legal proceedings or protest. The bank simply handles the collection as instructed without additional actions.

“Any charges and/or expenses incurred by banks in connection with such protest, or other legal process, will be for the account of the party from whom the collection instruction was received.”

Explanation:
Any costs or expenses related to protesting the document or undertaking other legal processes are the responsibility of the party who issued the collection instruction. This ensures that the bank’s costs are covered by the instructing party.

Example:
If ABC Ltd. instructs the bank to protest a document due to non-payment and incurs a fee for this legal action, ABC Ltd. will be responsible for covering this expense, not the bank. The bank will charge ABC Ltd. for the cost of the protest process.

Article 25: Case-of-Need

“If the principal nominates a representative to act as case-of-need in the event of non-payment and/or non-acceptance the collection instruction should clearly and fully indicate the powers of such case-of-need.”

Explanation:
This clause requires that if a principal designates a representative to handle matters in case of non-payment or non-acceptance, the collection instruction must specify the powers granted to this representative. The instructions should be comprehensive to avoid ambiguity.

Example:
If ABC Ltd. designates Mr. John Doe as the case-of-need representative, the collection instruction should detail Mr. Doe’s authority, such as whether he can negotiate or extend the payment deadline. For instance, the instruction might state, “Mr. John Doe is authorized to negotiate an extension of payment up to 30 days if necessary.” This clarity ensures that the bank knows exactly how Mr. Doe can act on behalf of ABC Ltd.

“In the absence of such indication banks will not accept any instructions from the case-of-need.”

Explanation:
Without clear instructions specifying the powers of the case-of-need representative, banks will not entertain or follow any instructions given by the representative. This clause ensures that the representative’s role and authority are clearly defined.

Example:
If ABC Ltd. appoints Mr. John Doe as the case-of-need representative but fails to specify his powers in the collection instruction, the bank will not follow any directives from Mr. Doe. The bank will only act according to the original collection instructions and will not engage with the representative.

URC 522 Article 22 and 23: “Acceptance”, “Promissory Notes and Other Instruments” – Explanation

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ARTICLE 22: ACCEPTANCE

Clause: “The presenting bank is responsible for seeing that the form of the acceptance of a bill of exchange appears to be complete and correct, but is not responsible for the genuineness of any signature or for the authority of any signatory to sign the acceptance.”

Explanation:

This clause outlines the obligations of the presenting bank when dealing with the acceptance of a bill of exchange under documentary collections. The presenting bank must ensure that the acceptance form is complete and appears correct in all visible aspects, such as dates, amounts, and other necessary details. However, the bank is not liable for verifying the authenticity of signatures or the authority of the person who has signed the acceptance. This means the bank does not have to investigate whether the person signing the document is genuinely authorized to do so or whether the signature is legitimate.

Example:

Imagine a scenario where a bill of exchange is presented for acceptance, and it appears complete with the necessary information like the date, amount, and place of payment. The presenting bank checks these details and finds everything in order, so it proceeds with the acceptance process. Later, it turns out that the signature on the acceptance was forged, or the person who signed it was not authorized to do so. According to this clause, the bank would not be held responsible for this forgery or lack of authority, as its obligation was only to ensure the form’s completeness and correctness, not the authenticity of the signatures.

ARTICLE 23: PROMISSORY NOTES AND OTHER INSTRUMENTS

Clause: “The presenting bank is not responsible for the genuineness of any signature or for the authority of any signatory to sign a promissory note, receipt, or other instruments.”

Explanation:

Article 23 emphasizes that the presenting bank bears no responsibility for verifying the genuineness of signatures or the authority of signatories on promissory notes, receipts, or other financial instruments submitted under documentary collections. The bank’s role is limited to the physical presentation and handling of these documents. It is not required to authenticate the signatures or confirm that the individuals who signed the documents have the proper authority to do so.

Example:

Consider a situation where a promissory note is presented to the bank for processing. The bank forwards the note without checking whether the signature on it is genuine or whether the person who signed it had the authority to commit to the payment. If it later comes to light that the signature was forged or unauthorized, the presenting bank is not liable for this issue, as its responsibility does not extend to verifying the authenticity or authority of the signatures on such documents.

URC 522 Article 19: “Partial Payments” – Explanation

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ARTICLE 19: PARTIAL PAYMENTS

Clause a:

“In respect of clean collections, partial payments may be accepted if and to the extent to which and on the conditions on which partial payments are authorised by the law in force in the place of payment. The financial document(s) will be released to the drawee only when full payment thereof has been received.”

Explanation: This clause allows for partial payments in clean collections, provided that the law in the place where payment is to be made permits such partial payments. Clean collections involve the collection of financial documents without accompanying commercial documents (like invoices or bills of lading). The key point here is that even if a partial payment is made, the financial documents (such as drafts or promissory notes) will only be handed over to the drawee (the party expected to pay) once the full payment is received.

Example: A bank in India is handling a clean collection for a draft of $10,000 drawn on a drawee in the USA. The drawee offers to make a partial payment of $6,000, but under US law, partial payments on such drafts are not permissible. As a result, the bank must refuse the partial payment. If US law did allow partial payments, the bank would still need to hold the financial document until the full $10,000 is paid.

Clause b:

“In respect of documentary collections, partial payments will only be accepted if specifically authorised in the collection instruction. However, unless otherwise instructed, the presenting bank will release the documents to the drawee only after full payment has been received, and the presenting bank will not be responsible for any consequences arising out of any delay in the delivery of documents.”

Explanation: This clause deals with documentary collections, where both financial and commercial documents are presented for payment. Partial payments can only be accepted if the collection instruction (instructions from the seller or remitting bank to the presenting bank) explicitly allows it. Even then, unless the collection instruction states otherwise, the presenting bank should not release the documents to the drawee until full payment has been made. The bank is also not liable for any delays in document delivery that result from this process.

Example: A seller in Germany exports goods to a buyer in Brazil under a documentary collection of $50,000. The collection instruction specifies that partial payments are acceptable. The buyer makes an initial payment of $30,000. However, the presenting bank in Brazil cannot release the shipping documents (e.g., bill of lading, invoice) to the buyer until the remaining $20,000 is paid, unless the collection instruction specifically allows for the documents to be released against partial payment.

Clause c:

“In all cases partial payments will be accepted only subject to compliance with the provisions of either Article 17 or Article 18 as appropriate. Partial payment, if accepted, will be dealt with in accordance with the provisions of Article 16.”

Explanation: This clause emphasizes that any partial payment, whether in clean or documentary collections, must comply with the relevant provisions of Article 17 (which deals with clean collections) or Article 18 (which deals with documentary collections). Moreover, any accepted partial payment must be processed according to the rules outlined in Article 16, which addresses issues related to the presentation of documents and payment.

Example: If a partial payment is accepted for a documentary collection under Article 18, it must follow the procedures for handling documents as per Article 16. For instance, if Article 16 requires that the documents be delivered to the drawee against payment, and a partial payment is accepted, the presenting bank must ensure that this requirement is still met. The documents should not be handed over unless the full payment conditions outlined in Article 16 are satisfied.

URC 522 Article 18: “Payment in Foreign Currency” – Detailed Explanation

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ARTICLE 18 PAYMENT IN FOREIGN CURRENCY

Clause: “In the case of documents payable in a currency other than that of the country of payment (foreign currency), the presenting bank must, unless otherwise instructed in the collection instruction, release the documents to the drawee against payment in the designated foreign currency only if such foreign currency can immediately be remitted in accordance with the instructions given in the collection instruction.”

Explanation: This clause outlines the procedure for handling documents under a collection instruction when the payment is to be made in a foreign currency. The presenting bank, which is the bank handling the documents on behalf of the exporter or seller, is responsible for ensuring that the documents are only released to the drawee (the buyer or importer) if the payment is made in the foreign currency specified in the collection instruction. The key point here is that the foreign currency must be available for immediate remittance according to the instructions given in the collection order. If the collection instruction specifies a payment in a foreign currency, the bank cannot release the documents to the drawee for payment in local currency unless explicitly instructed otherwise.

Example: Let’s consider an example where an exporter in Germany sells goods to an importer in India. The sales contract states that the payment will be made in US dollars (USD). The exporter sends the shipping documents to their bank in Germany, which in turn sends them to the presenting bank in India with a collection instruction stating that the payment must be made in USD.

When the Indian importer (drawee) approaches the presenting bank in India to obtain the shipping documents, the bank must ensure that the payment is made in USD as per the collection instruction. The bank will only release the documents to the importer once the USD payment is confirmed and can be immediately remitted according to the instructions provided by the exporter’s bank.

If the importer attempts to pay in Indian Rupees (INR) instead of USD, the presenting bank must refuse to release the documents unless the collection instruction specifically allows for payment in INR. This ensures that the exporter receives the payment in the agreed foreign currency, protecting their financial interests in the transaction.

This explanation and example should help clarify how Article 18 of URC 522 operates in practice, ensuring that the payment terms in a foreign currency are strictly adhered to, unless otherwise specified in the collection instruction.

URC 522 Article 17: “Payment in Local Currency” Explained

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ARTICLE 17 PAYMENT IN LOCAL CURRENCY

Clause 1: “In the case of documents payable in the currency of the country of payment (local currency), the presenting bank must, unless otherwise instructed in the collection instruction, release the documents to the drawee against payment in local currency only if such currency is immediately available for disposal in the manner specified in the collection instruction.”

Explanation:

This clause mandates that when a collection involves payment in the local currency of the country where the payment is to be made, the presenting bank has a specific responsibility. The bank must ensure that the documents are only handed over to the drawee (the party responsible for making the payment) upon receiving the local currency payment. The crucial point here is that the currency must be “immediately available for disposal” according to the instructions given in the collection order. This means that the funds should be instantly usable in the manner specified by the remitting bank (the bank that initiated the collection process). If the payment is not immediately available in the required manner, the presenting bank should not release the documents unless explicitly instructed otherwise.

Example:

Imagine a situation where an exporter in the United States ships goods to a buyer in India under a documentary collection. The collection instruction from the U.S. bank specifies that payment must be made in Indian Rupees (INR). When the Indian bank (presenting bank) receives the documents, they are instructed to release these documents to the buyer only upon receiving payment in INR. However, the buyer offers to pay in a foreign currency, such as U.S. dollars, instead of INR.

In this scenario, unless the collection instruction specifically allows for payment in a currency other than INR, the presenting bank should refuse to release the documents. The bank must ensure that the payment in INR is immediately available and can be used as per the remitting bank’s instructions before handing over the documents to the buyer. If the buyer insists on paying in U.S. dollars, the presenting bank would need to seek clarification or further instructions from the remitting bank.

By breaking down this article into its key components and providing practical examples, the intention behind URC 522 Article 17 becomes clear. It ensures that local currency payments are handled in a manner that aligns with the instructions provided, thereby protecting the interests of all parties involved in the transaction.