CAN YOU PLEASE MAKE CLARIFICATIONS ON THE DIFFERENCE IN THE FOLLOWING TERMS IN RELATIONS TO LETTER CREDITS SETTLEMENTS. PLEASE ITS VERY URGENT AND THE APPLICABLE RULES UCP600.
MODOU K TOURAY
LC available by (sight) payment does not require sight drafts to be
presented and normally the payment is to be effected at the counter of
the issuing bank or at its nominated paying bank upon receipt of the
complying documents. The beneficiary under LC available by payment
normally may not obtain the payment in advance by negotiating (selling
at a discount) the documents at his bank.
Different from LC
available by payment, LC available by negotiation allows the beneficiary
to receive the payment by negotiating the sight drafts and documents at
a nominated negotiating bank which is normally located in his country.
The negotiation may be effected on a with or without recourse basis.
However, under a confirmed LC, the confirming bank must negotiate the
documents on without recourse basis.
Acceptance LCs and deferred
payment LCs are usance LCs. The difference is that the acceptance LC
requires a time draft, whereas the deferred payment LC does not.
From an earlier post ....
Negotiation : An LC payable by negotiation may require a draft (drawn on any party except the applicant, or the negotiating bank) but requirement is not mandatory. If the negotiating bank is also the confirming bank, the draft is likely to be required to be drawn on either a reimbursing bank or the issuing bank.
The act of negotiation involves the purchasing of the drawee's (in the case of a draft being required, this could be any one of the reimbursing bank, issuing bank or a confirming bank) obligation represented by the draft and/or documents presented by the beneficiary.
The negotiating bank would also have to "give value", that is to say, make immediate payment to the beneficiary, less an interest element, representing the delay period in receiving payment from the issuing/confirming/reimbursing bank.
If payment is made for the full amount by the negotiating bank, this does not represent true negotiation, and nor is it represented by payment being made after the negotiating bank is put in receipt of covering funds.
Needless to say, although a negotiating bank has full recourse on the issuing bank, not many non-confirming banks are willing to "negotiate" in its truest sense.
Acceptance : Acceptance, must always involve a usance (time) draft, and may be drawn on either a "nominated", that is to say, a bank nominated by the issuing bank, which is likely to be a confirming bank. The basis of calculation of the due date must be with reference to a fixed point in time (e.g. 60 days from B/L date, 20 days sight,etc). Whomsoever the draft is drawn on, once it has been "accepted" for payment, the drawee becomes liable for payment under the draft.
Drafts under acceptance credits are sometimes useful, as the instruments are abstract from the underlying LC and are subject to its own set of rules, codified in the Bills of Exchange Act 1882. As such, they may have a life and value outside of the LC transaction, through the endorsement and purchase of the draft by subsequent holders, in the secondary market, such as in Forfaiting.
The drawee's legally bound obligation to honour the draft at maturity need not nenecessarly be tied up in the LC transaction, and as such, a rightful holder of the draft in "due course", who may not be a party to the LC, can theoreticaly enforce payment from the drawee in his own name.
An LC cannot be available by acceptance with a bank, unless that bank is also the designated drawee of the draft. For example, an LC available by acceptance of beneficiary's draft drawn at x days sight on the issuing bank. and payable at the counters of the nominated bank, is properly, deemed to be available by "negotiation" and not by "acceptance".
Deferred Payment : As in "Acceptance", payment is "deferred", i.e paid at a later date, but the fundamental difference is that drafts are not called for.
These fundamental concepts of the method of payment run throughout UCP600, but specifically, Articles 2, 6, 7, 8, 12, 15, and 35 all refer.