What is Stale B/L?
Usually, there is a stipulation on the L/C stating that the export documents including B/L should be brought to the bank for negotiation within a certain period of time, i.e. 10 days after the shipment. If the documents are presented to the bank after that period has passed, the negotiating bank can refuse to accept the documents and the exporter cannot recover the cost.

When there is no description on the time limit for negotiation of the documents on the L/C, and if they are brought to the bank more than 21 days later than the date of issuance of the B/L, the bank can refuse to purchase the documents.

This refusal of purchasing the documents is practised based on the Uniform Customs and Practice for Documentary Credits established by ICC (International Chamber of Commerce). However, if there is a description of "Acceptable" on the L/C, the bank will purchase them. Such B/L which is presented to the bank later than the agreed time limit or 21 days later than the date of issuance of B/L is called Stale B/L.

What is Bill of Exchange?
The Bill of Exchange (Draft) is prepared by the exporter and submitted to the negotiating bank in the exporter's country. It stipulates that the drawer (exporter) requests the reimbursing bank (usually the L/C issuing bank) in the importer's country (actual name of the bank) to reimburse the cost to the negotiating bank (actual name of the bank) in the exporter's country and charge the same to the importer's account within a specified time limit. After shipment is made, the exporter collects payment from the negotiating bank in exchange for B/L together with Bill of Exchange and other documents.
(See Sample Form : Bill of Exchange).

What is Negotiation of Documentary Bill?
The process of collection can be slightly different between the case based on L/C terms and the case without L/C terms. If the transaction is based on L/C terms, the exporter presents the Application for Negotiation of Documentary Bill to the negotiating bank, then the bank will make immediate payment in exchange for the Bill of Exchange, B/L and other shipping documents
(See Flow Chart: Settlement by Collection of Documentary Bill of Exchange)

If the transaction is not based on L/C terms, frequently the exporter presents an Application for Collection of Documentary Bill instead of an Application for Negotiation of Documentary Bill to the negotiating bank for collection. Then, the negotiating bank sends all the documents including the Bill of Exchange and B/L and other shipping documents received from the exporter to the corresponding bank (reimbursing bank) in the importer's country to collect the payment from the importer in exchange for the documents. Only after the negotiating bank confirms that the importer has executed payment, then the reimbursement can be made to the exporter. The negotiating bank and the reimbursing bank settle the cost later.

The exporter should be aware that even in the case of terms without L/C, the negotiating bank may still purchase the documents presented by the exporter and pay only at their discretion. Therefore it is very important that the exporter consults with the negotiating bank and settles all necessary arrangements before including the contract with the importer.

The documents necessary for negotiation of the bill is stipulated on L/C and if the transaction is based on terms without L/C, they are stipulated in the contract. Documents may include invoice, packing list, insurance policy, certificate of origin, customs invoice, consular invoice, inspection certificate, quarantine certificate, weight certificate, measurement certificate, etc.

What happens if a discrepancy is found between the conditions of L/C and the documents?
Sometimes, a discrepancy or contradiction between the conditions of L/C and the documents attached can be found at the time the exporter brings the bill of exchange with the shipping documents to the bank for negotiation. Among such discrepancies, are late (delayed) shipment (made after the agreed shipping date), non-presentation of some documents required, partial shipments made, different goods shipped or late (delayed) presentation of the documents to the bank.

When such a case occurs, the negotiating bank may not agree to negotiate the bill of exchange. On some occasions, the bank may agree to honour the documents, on condition that the exporter submit the L/G (Letter of Guarantee) which guarantees the exporter to take all responsibility for the bank if either the L/C opening bank or notifying bank should refuse to purchase the documents. This method of settlement can be taken if it is judged by the bank that the discrepancy is not very serious.

However, when the discrepancy is considered to be serious, the negotiating bank may inquire as to whether the opening bank (notifying bank) can pay for the documents as they are, or send the documents to the opening bank for collection of the bill before they pay the exporter, though it is a lengthy process.

Therefore it is imperative for the exporter to check and prepare every document accurately, such as the L/C or the sales contract, before bringing them to the negotiating bank. If any discrepancy is expected, the exporter should get in touch with the importer and have him request the L/C opening bank to amend the conditions of L/C.

Is there a simple & fast way of receiving payment?
There are other ways for the exporter to receive payment without using a documentary bill. The simplest and fastest way of collecting payment is to request the importer to remit payment by Telegraphic Transfer at his bank.

Another easy alternative is to request the importer to purchase a cheque at his bank and mail it to the exporter. These easy methods of collecting payment are not popular, since risk imposed on either the importer or exporter is high. If deferred payment or cash on delivery is imposed, it is risky for the exporter. On the other hand, if prepayment terms are imposed, it is risky for the importer.

Considering such constraint which may be incurred by remittance through Telegraphic Transfer and cheque, settlement of payment by means of Documentary Collection based on Letter of Credit can be the most established and accepted practice.

See Flow Chart : Remittance by Cheque