Payment at sight... long or short sight?


Did you ever consider the phrase "payment as sight"?

When I started working with LCs I learned that it means "now." 

However I soon found that this is not always true. For example if a presentation is made to a nominated - non-confirming bank - payment to the beneficiary is made when the funds are duly received from the issuing bank. This may be weeks after the complying presentation being made to the nominated bank.

Within the UCP 600 payment at sight is part of the definition of Honour (article 2). It is defined in a kind of circular manner I.e.: "... to pay at sight if the credit is available by sight payment..." In other words: sight payment means - to pay at sight. Right!

Article 15 of the UCP 600 (complying presentation) takes us a bit closer. I will quote the full article:

a.    When an issuing bank determines that a presentation  is complying, it must honour.  
b.    When a confirming bank determines that a presentation is complying, it must honour or negotiate and forward the  documents to the issuing bank.  
c.   When a nominated bank determines that a  presentation is complying and honours or negotiates, it must forward the documents to the confirming bank or issuing bank.  

Of course the heading of the article is misleading; as it deals with "when" a bank must honour or negotiate following a complying presentation being made.

In any case - if the LC is available by "sight payment" the confirming / issuing bank must pay "when" it determines that a presentation is complying. This then open the question as to what "when" means.

Does that mean within the very minute that the LC officer deem the presentation complying? Next day? Same week? Next week?

The UCP 600 does not answer that.

What is interesting - and frankly amazing - is that the language used in the UCP 600 (in force 2007) - makes reference to practice that goes centuries back.

The fact is that "at sight" dates back to a time where the beneficiary went to the bank (at sight) presenting the documents, and would wait in the bank to get paid. And leave with cash in the suitcase.

Of course such practice no longer exist. Today the documents may (in exceptional cases) be hand delivered to the bank - but that is as far as it goes. From that the beneficiary goes home - and the documents enters into the normal "process" of the bank - and the payment (when made) is not made in cash - but rather via transfer to the bank account of the beneficiary. Subject to the value rules that apply.

The above may seem abstract; and accepted: as such this (fortunately) does not create problems. However - the UCP 600 is filled with terminology that relates to a practice long gone. Just try to compare UCP 600 (2007) to UCP 82 (1933). There are many identical articles.

Yesterday I attended the Annual LC Survey in Stockholm - and I was asked how far we are from being able to accept "electronic bills of lading" under LCs. Well ... My answer was that the electronic bill of lading is reality. The eUCP is reality. So the only thing stopping this is the habits of the trading parties and (not least) the banks.

I will argue that most trade finance banks in many ways are stuck in the past; and a main reason for that is that the UCP language is that of the past.

So ... A lot a discussion is in going on whether or not a revision of UCP 600 should be initiated. For the reason above alone - I think it is time for a real update of the UCP is required; I.e. An update that brings it in line with the practice of today - and disregard language that that is born out of practice dated back centuries....

You may say I'm a dreamer, but I'm not the only one.

Take care of each other and the LC.

Kind regards
Kim







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