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Wording in LC in order to assure discoutability

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Fri, 03/05/2010 - 14:22
Sealcoat
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Our company will be the beneficiary of an irrevocable LC, confirmed by a bank in our country. Payment terms are 90 days BL date. Since we're planning on discounting the LC w called the confirming bank which says LC's are not discountable, Drafts are. They sayd the LC must specify availability by acceptance. My question is: what is a draft, and how to word the LC so we can assure the confirming bank wants to discount it.

Thanks, Sealcoat

‹ B/L issued to the order of the issuing bank of an L/C Performance Bond certified by Applicant ›
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Sun, 03/07/2010 - 10:41
#1
Abrar
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Discounting

"Discounting" is simply a concept, and although not defined under UCP600, provisions to protect a nominated bank in exercising its right to advance sums ahead of maturity, against a complying  presentation has been  well established, since the inception of UCP600 (see Articles. 7C and 8C) . It does not matter whether the LC is available by acceptance (with a draft) or by deferred payment (without a draft). In your case,  the confirming bank's view is incorrect. They are authorised to "discount" whether the LC is available by acceptance, by negotiation or by deferred payment. The only thing that matters is an ability to determine the maturity date by the confirming bank alone. So for example, a draft available by acceptance on the issuing bank, payable at 60 days sight, would not be an acceptable instrument to discount, because the maturity date is to be decided by the issuing bank, whereas, the maturity date expressed as say, "60 days from B/L date" (whether drawn on the issuing bank or the confirming bank) can be determined by the confirming bank.

"Discounting" also takes place under an unconfirmed LC available by negotiation if the negotiating bank opts to exercise its right to purchase the issuing bank's payment obligation (to the beneficiary) from the beneficiary and pay before receiving the funds from the issuing bank. Such "discounting" would of course, be with recourse.  

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Sat, 03/06/2010 - 00:07
#2
ZARIZII
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Joined: 03/04/2010
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Discounting

Hi Sealcoat,

Its an act of negotiating the docs. The bank will purchase the draft or also known as Bills of Exchange in order to pay your Co. at sight. 

You will need to make sure the credit is available with the confirming bank by negotiation and the draft drawn to the Issuing Bank in order to enable them to discount you the docs. If the Lc is available by acceptance, the Confirming Bank will not negotiate the docs, instead they will honour it and  will undertake to pay at maturity.

Prior to UCP600, the draft must be drawn to Confirming Bank and will be kept by them whereas the other docs are sent to the Issuing Bank. But now, not anymore.

 

 

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