What Is A Letter Of Credit Reimbursement Agreement

There are two possible reasons for bank back-compensation as part of a credit documentary transaction. Repayments must be governed either by URR 725 or by Article 13 of UCP 600 for letters of credit opened under the most recent rules for documentary credits. Without obtaining a repayment commitment from the paying bank, the confirming bank may decide not to include its confirmation in the credit. The repayment bank is the bank that is ordered or empowered to grant a refund to the designated bank or the confirmation bank. To be reimbursed by another person or organization, you must first take some fees on you and then you are qualified for a refund. The same logic applies to reimbursement as a concept of commercial financing. The issuing bank placed a reference to the MT700 rapid message under the scope “40E Rules” as “UCPURR LATEST VERSION,” meaning that the institution is subject to the latest version of the credit rules (UCP 600) and the latest version of the bank`s repayment rules to the bank (URR 725). Note: In addition, the refund authorization must expressly state that it is subject to urR 725 – The Uniforme Rules for Bank-to-Bank Reimbursements und Documentary Credits. The refund bank is the bank that, at the request of the issuing bank, has the right to pay or accept and pay under a documentary credit under Article 13 of UCP 600 or, if contracted, the ICC`s uniform rules on documentary credit repayments (725 URR). (1) Note: Please note that the confirmation process is a business decision and no bank is required to add confirmation to a credit. Please read my article confirmation and confirmation of the letter of credit for more details. The second reason may be that the issuing bank and the designated bank (if the bank confirms the confirmed letter of credit) do not have an account report and may need a third bank for clearing. Learn more about FindLaw`s newsletter, including our terms of use and privacy policies.

A confirmation bank or designated bank first honours or negotiates against such a submission as part of a letter of credit, and is then reimbursed by the refundable banks, in accordance with the authorization given to the issuing banks. The first reason may be that the confirmation bank does not trust the issuing bank with regard to risk issues and requires more security. In this situation, the presence of the repayment bank is a prerequisite for confirmation.