Name: mehdik

What does "agreeing to advance funds" mean in definition of Negotiation under article 2 of UCP 600?

I would be grateful if you would clarify the matter with an example.

Regards

Dear mehdik,

Good question :-) Which I guess have been discussed for quite many years :-)

My interpretation would be:

Some kind of agreement between the nominated bank and the beneficiary; which would include a kind of promise from the nominated bank - setting the conditions for the negotiation. I have previously heard the following example: "we shall discount the documents upon receipt of approval from the issuing bank".

That being said - I see only rarely such structures, as I do not think they
add much value to anything.

Best regards

Kim Christensen

To agree to advance funds to the beneficiary means negotiating/confirming bank and the beneficiary conclude a written agreement/contract in which respect the bank agrees to pay to the beneficiary the value of the documents less commission/charges and an interest, with or without recourse (without recourse in case of a confirming bank).

The negotiating/confirming bank will then cash the document value upon the date issuing bank will pay as per LC terms.

The decision of advancing funds is based on a detailed analyze of all risks involved regarding both issuing bank and beneficiary.

In some banks the action of advancing funds take place in the LC departments, in other banks into financing/factoring departments.