UPAS/UPAU

When an Usance LC [Deferred Payment / Acceptance] is opened the Buyer/ Applicant requires more time to pay the bill. Whereas, the Seller/ Beneficiary wants to get paid immediately or in a more shorter period of time. This necessitates the Applicant to look for a solution with simple financing options, which should also be comparatively cheaper. To bridge this gap, UPAS and UPAU LC's were introduced. However, these are not considered as normal bank finances/ loans in the market but more comparable to buying the accepted bills.

The details of the UPAS/ UPAU clauses have to be included in the Documentary Credit at the request of the Applicant, to authorize the Beneficiary to request payment during the presentation. Therefore, when relevant (UPAS/ UPAU) options are selected in Opening an Import LC, system displays a warning to the user to add more details about UPAS/ UPAU in the Additional Conditions. This acts as a reminder for the user to provide detailed information on UPAS/ UPAU clause.

UPAS: Usance Payable at Sight

UPAS stands for 'Usance Payable at Sight LC' which is a combination of Usance LC and Sight LC. UPAS LC is an Usance LC, where payment is made at Sight basis to the Beneficiary (provided, compliant documents are presented) whereas, Applicant settles the Issuing bank at the maturity of the bill.

Since payment has to be made to the Beneficiary during 'Acceptance' of the document (Send, Accept and Settle Documents), the checkbox 'Payment Remitted' has to be checked. Once the checkbox is set, an internal UP (related to UPA liability) account will be debited and payment remitted to Beneficiary.

At the maturity of the document set (Settle Usance Documents at Maturity) the Applicant account will be debited and UP account will be credited.

UPAU: Usance Payable at Usance

UPAU stands for 'Usance Payable at Usance'. This is similar to UPAS and is an Usance LC, where Applicant settles the LC at end of the maturity period. However, the Beneficiary can receive payment in a shorter tenor than the actual LC tenor/ maturity. Example: With Usance period as 90 days at sight, Beneficiary would have agreed for a shorter tenor such as 60 days. Therefore the UPAU days here would be 30 days, thereby which, the Beneficiary can receive payment at 60 days (UPAU maturity) whereas Applicant will settle to Issuing bank at 90 days (LC maturity).

 

UPAU system flow:

Payment has to be made to the Beneficiary not during 'Acceptance' of the document, but at the UPAU maturity. Therefore, the system allows two (Send, Accept and Settle Documents) transactions. The checkbox 'Payment Remitted' will be allowed to be checked/set only in the second (Send, Accept and Settle Documents) transaction. Once the checkbox is set, an internal UP (related to UPA liability) account will be debited and payment remitted to Beneficiary.

At the actual maturity of the document set (Settle Usance Documents at Maturity) the Applicant account will be debited and UP account will be credited.