Payment Under UCP 600

The procedure for payment under the Uniform Customs & Practice for Documentary Credits (UCP 600), of the International Chamber of Commerce (ICC) – Paris, which regulates international trade begins with and involves a beneficiary person presenting a complying document to a nominated or issuing bank which then examines them for the purpose.

Payment is not guaranteed unless and until the presented documents are found to be compliant with the terms and conditions of the credit. If the documents are compliant the issuing bank is obligated to honour the credit by making either, payment or deferred payment or accepting a draft or negotiating.

 The payment is made to the beneficiary by one of three sources that are either, the issuing bank, a confirming bank or a nominated bank.

The payment procedure starts by documents presentation, the beneficiary presents the required documents to a nominated bank or the issuing bank. 

Herein, the bank shall examine the documents to ensure that they strictly comply with the terms of the letter of credit. 

This includes checking of any discrepancies, and here, the experience of banks is under consideration and special know-how and relevant experience is required. Any mistake or oversight could cause great havoc and problems.

The issuing banks obligation is required here, if the documents are compliant, the issuing bank must honour the credit, as it is irrevocably bound to do so upon issuance.

With reference to the payment method of the credit, the payment is made according to the credit’s availability terms. Herein, also, bankers should be vigilant with particular reference to the payment terms.

In case of “sight payment”, the bank pays immediately, whereas in “deferred payment” the bank pays at a future date specified in the credit, in instances of “acceptance payment”, the bank accepts a draft drawn on it and payment occur at maturity. However, in instances of “negotiation”, the bank purchases the drafts and or documents by advancing funds to the beneficiary.

Regarding the payment source, the beneficiary will receive payment from one of the following banks, the issuing bank or the confirming bank that has honoured or negotiated the presentation, or a nominated bank that has agreed to act on its nomination.

For reimbursement, after honouring the presentation the issuing bank is obligated to reimburse the nominated or the confirming bank that has paid or negotiated a complying presentation and forwarded the documents to the issuing bank.

This at the end signifies, a clear professional co-operation between different banks to achieve one single banking transaction. They all share the cake jointly according to the share or contribution of each bank.

Letters of credit (LCs) present a kind of irrevocable credit. As a matter of law and banking practice, the UCP 600 presumes that letters of credit (LCs) are irrevocable unless stated otherwise. 

There is difference between revocable and irrevocable credits with reference to the obligations mentioned therein, special attention is required from all parties in the respect.