Banking law. Payment order and letter of credit (most important)

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Banking law. Payment order and letter of credit (most important)

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46. Payment order and letter of credit

When making payments by payment order, the bank undertakes, on behalf of the payer, at the expense of the funds in his account, to transfer a certain amount of money to the account of the person indicated by the payer in this or in another bank within the period provided for by law or established in accordance with it, unless a shorter period is provided for by the bank account agreement or not determined by the customs of business practice applied in banking practice.

Payer's order executed by the bank if there are funds on the payer's account, unless otherwise provided by the agreement between the payer and the bank. Instructions are executed by the bank in compliance with the order in which funds are debited from the account. The bank that accepted the payer's payment order is obliged to transfer the corresponding amount of money to the recipient's bank for its crediting to the account of the person specified in the order within the prescribed period. He has the right to attract other banks to perform operations for the transfer of funds to the account specified in the client's order. At the request of the payer, the bank is obliged to immediately inform him of the execution of the order.

Money orders are urgent, early and deferred. They are established by agreement of the parties to settlement relations.

Letter of credit represents a monetary obligation of a bank issued by it on behalf of a client in favor of its counterparty under an agreement under which the bank that opened the letter of credit (issuing bank) can make a payment to the supplier or authorize another bank to make such payments.

When making payments under a letter of credit, in accordance with the Regulations on Non-Cash Payments, the bank acting on behalf of the payer to open the letter of credit (issuing bank) undertakes to make payments in favor of the recipient of the funds upon presentation of documents that comply with all the terms of the letter of credit, or to provide authority to another bank (executing bank) to make such payments. The executing bank may be the issuing bank, the recipient bank, or another bank. The letter of credit is separate and independent from the main agreement.

Types of letters of credit:

1) covered (deposited), which is considered a letter of credit, at the opening of which the issuing bank transfers the payer's own funds or the credit granted to him at the disposal of the supplier's bank (executing bank) to a separate balance account "Letters of credit" for the entire period of validity of the obligations of the issuing bank;

2) uncovered (guaranteed) letter of credit, which can be opened when correspondent relations are established between banks;

3) revocable, in which there is no indication of whether it is revocable or irrevocable;

4) irrevocable, which cannot be changed or canceled without the consent of the supplier in whose favor it is opened.

When making settlements under a letter of credit, the payer submits to the issuing bank 2 copies of the application for opening a letter of credit, in which he instructs the issuing bank to open a letter of credit. Based on the application, the issuing bank draws up a letter of credit.

To receive funds under a letter of credit, the supplier, having shipped the goods, submits a register of invoices, shipping and other documents stipulated by the terms of the letter of credit to the servicing bank. Documents confirming payments under the letter of credit must be submitted by the supplier to the bank before the expiration of the letter of credit and confirm the fulfillment of all conditions of the letter of credit. If at least one of these conditions is violated, no payments under the letter of credit are made. When paying under a letter of credit, the supplier's bank (executing bank) is obliged to verify that the supplier complies with all the conditions of the letter of credit, as well as the correctness of the register of accounts.

Author: Belousov D.S.

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