Letter of Credit Forum

Put simply, documents sent on "approval" to an issing bank, or a nominated bank, puts the onus on the bank to undertake an independent examination of the documents, and to otherwise comply with the provisions of articles 7,8, 14 & 16 of UCP600. To add emphasis, and for avoidance of any doubt, the remitting bank may state that the documents are forwarded on approval "under protection of the LC".

Documents forwarded on collection on the other hand, (whether or not under the provisions of URC) relieves the bank(s) from the obligation to examine the documents for compliance, and instead, puts the onus on the applicant/drawee to accept the documents, a decision which may, or may not be based on any consideration to the underlying LC terms.

So, if the beneficiary intends to seek whatever limited recourse that may yet be available under the LC under a discrepant presentation , the better option would be to instruct his bank to forward documents "on approval basis under protection of the LC".

In both cases however, the receiving bank is entrusted with holding the documents in trust for, and at the disposal of the remitting party, until such time the documents are paid for, or (if applicable) accepted for payment at a future determinable maturity date.