Reimbursement

Business Sector (‘RM’)

Introduction:

In an LC transaction, the Issuing Bank may nominate a Reimbursing Bank allowing the Negotiating Bank to collect the money from the reimbursing Bank.  This is like a cheque facility provided by banks, wherein the Negotiating Bank can collect the money once the goods have been shipped.

The Reimbursement Bank earns a commission per transaction and enjoys float income from the balance kept with the Reimbursement Bank by the issuing Bank.  The Reimbursing Bank does not involve itself in checking the documentation of the transaction.  Its only role is to either make the payment on the due date a (for usance LCs) or the day on which the Negotiating Bank demands the same (for sight LCs).

The Reimbursing Bank is the bank authorized to honor the reimbursement claim in settlement of negotiation/acceptance/payment lodged with it by the negotiating bank.  It is normally the bank with which Issuing Bank has an account, from which payment is to be made.

The Negotiating bank forwards a reimbursement claim to the Reimbursing bank. The Reimbursing bank pays the Negotiating bank as per instructions issued to it by the Issuing bank.

Reimbursement Authorization means an instruction or authorization, independent of the credit, issued by an issuing bank to a reimbursing bank to reimburse a claiming bank or, if so, requested by the issuing bank, to accept and pay a time draft drawn on the reimbursing bank.          

Reimbursement Undertaking means a separate irrevocable undertaking of the reimbursing bank, issued upon the authorization or request of the issuing bank, to the claiming bank named in the reimbursement authorization, to honour that bank’s reimbursement claim, provided the terms and conditions of the reimbursement undertaking have been complied with.

In DOKA SaaS, under the “Reimbursements” business sector, reimbursement authorizations and reimbursement claims are handled. The business sector “Reimbursements” is represented with the business sector 'RM'. Reimbursement claims, as far as they are not settled immediately, will be dealt with in subcontracts with the business sector 'RC'.

An issuing bank ('ISS') may send a reimbursement authorization to an account correspondent (reimbursement bank 'RMB'). This is a message that authorizes the reimbursement bank to honor claims for payment under a specified letter of credit by the designated “available with bank” ('AVB'). The “Claiming Bank” (CLB) is equivalent to the bank that claims the reimbursement.

As far as a received claim matches the conditions of the reimbursement authorization, the bank is authorized to debit an account of the issuing bank (or one of their subsidiaries) to credit the claiming bank directly or indirectly.

This module supports reimbursement authorizations, with appropriate correspondence and processing rules. It also supports confirmation of reimbursement authorizations whereby the reimbursement bank provides its own commitment additionally to the commitment of the issuing bank (under the letter of credit). If such commitment is requested by the claiming bank (available with bank from the letter of credit), it will be processed as a silent confirmation/reimbursement protection.

Flowchart Business Sector Reimbursement

System Outgoing Messages (Swift/Letter):