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Hi Friends,
As per Art 2 ,

“Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) and/or documents under a complying presentation, by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank.”

Now the above applies to usance credits wherein , reimbursement will be due on the due date (to the beneficiary via the nominated bank).

My question is regarding the wordings:

" ...advance ...funds to the beneficiary on .......the banking day on which reimbursement is due to the nominated bank "

If funds are given by the nominated bank on the day on which reimbursement is due to them, then how can it be termed “advance” . It is definitely Negotiation as Nominated Bank will be parting with funds on the due date even if they don’t receive from Issuing Bank on the same day but so far as the beneficiary is concerned, it is not an "Advance" as the funds are due to them on that due date.

Please help me understand this!
TIA
SGN

Hi Pal,

IMHO, negotiation is referring to l/c at sight! However if you consider usance l/c, negotiation costs interest from the date beneficiary is paid to the true maturity. A company having no necessity of funds immediately may ask the bank to effect the payment at certain date, but before the bank will receive proceeds from the issuing bank. In effect many negotiations are false negotiations as the nominated bank does not advance its own funds to the beneficiary.
Hoping to have been clear!!
Ciao

Advancing funds is based on purchasing by negotiating bank the benef's docs which refers to L/C at sight. Agreeing to advance funds is intended to cover the situation when reimbursement is due at certain maturity.
Even the funds are given by the nominated bank to benefs on the day when rembursement is due, that doesn't means it will happen simultaoneously with receipt of funds.
For example, the negotiating bank may credit benef's account at their opening hours but funds are received on the next day but with good value date (same as credited to benefs) acc. This will mostly happen when funds are in USD and there is a delays due to different time zones.
@ Picant! I know you are very aware of the fact that when a bank confirmed the credit , it is obliged to negotiate if the credit is available by negotiation i.e. to effectively purchase and advance funds on or before the day when reimbursement is due. Therefore I could not figure out how it could be a false negotiation.

Hi Picant,

Couldn't understand what you meant by "..negotiation is referring to l/c at sight! ". Negotiation is any purchase of draft/documents prior to receipt of funds by Nominated Bank right ( irrespective of LC tenor) ?

Hi Cristian,
Regarding "Even the funds are given by the nominated bank to benefs on the day when rembursement is due, that doesn't means it will happen simultaoneously with receipt of funds.".
This is similar to what I said that "...It is definitely Negotiation as Nominated Bank will be parting with funds on the due date even if they don’t receive from Issuing Bank on the same day ..."

The only difference between the above 2 statements is that in your statement "agreeing to advance" is considered from the nominated bank's point of view where the bank parts with funds from their own books ( thus creating a debit balance in their "advance" account) even before receiving from Issuing Bank WHEREAS I was considering from the beneficiary's point of view where getting funds on the day of maturity is "not an advance" for them as they are anyway entitled to get it on due date. I was considering nominated bank's action of parting with funds before receipt from Issuing Bank as " negotiation"( which is anyway the definition of negotiation) while questioning the word "advance" from the beneficiary's point of view.

Would be great to hear from both of you as well as others on this!

Thanks
SGN