Why Drafts Being Used in 'At Sight' LCs?

[Seoulio]

I have been doing some reading and realizing that drafts are not a common or required LC document in most cases. However, in my time working in a company using L/Cs to export to Korea, our documentation to the bank always included a draft, even when the LC was 'at sight' as opposed to usance or 'X DAYS FROM BL DATE'.

Why were we creating drafts for every docs. set? I was a lowly documentation officer at the time, so I was not privy to the discussions with our advising banks. Was this something our banks were requiring from us as an antiquated tradition which really were not required?

[picant]

Hi Pal,

in many Countries drafts or bills of exchange bear a stamp duty that is very high, considering the days to maturity. In Italy draft pays 1,2%, if maturing in one month the cost is 14,40% per annum.
Stamp duty gives the possibility to protest the draft and the possibility to recourse to the endorser etc.
but in case of documentary credit is only a way to request the amount promised and to document the
drawing.
I think that the cover letter could absolve it.
Other comments appreciated.
Ciao

[TaiOanlan]

@Seoulio
From practice point of view, I do agree with terminating requirement of Draft once and for all.
However, some regions ( especially Asia ) regard Draft as kind of cheque and regard it as one of key merchant instruments. I guess it is all about business custom. It is like paper is still heavily preferred in Trade Finance, it's hard to switch to electronic form.
The opinion on how to check Draft seems not unify. On one hand, you have voice that Draft is often not required document in a L/C ( unless it is so indicated in a L/C), so technically you don't need to check Draft. On the other hand, you have voice that completely counter above mentioned view........

Regards,

[vakilp]

also European credits usually do not call for drafts because a stamp tax

[Navi]

That's the question which I cannot find the answer for years. Even we do not require drafts, we often receive sight drafts attached to L/C documents and we directly put them in the files even without examining.

Even for usance L/Cs, I do not think drafts are necessary. During my LC career, we received hundreds of usance drafts and accepted them, however, only a few off them were requested back by the banks. Nearly all of them were kept in our files and paid by our bank at maturity. That means no difference in practice from deferred payment LCs.