UCP 600 Article 7: Honour at Maturity — Deferred Payment and Acceptance Credits

Introduction

An examiner who treats a deferred-payment or acceptance credit as a sight instrument that happens to pay later, or who treats prepayment by a nominated bank as a reason to withhold reimbursement, is working from a mutated map. UCP 600 Article 7 is not the bill of lading article, not the draft-tenor article, and not a licence to wait until a nominated bank has already paid. It is the issuing bank’s honour gate. For a credit available by deferred payment or by acceptance, honour is a two-step act: incur the undertaking (or accept the draft), then pay at maturity. The market word “usance” does not appear in UCP 600. The operative pair is deferred payment and acceptance. The illusion is that maturity is a courtesy date. The failure is systemic. The bank either refuses to honour a complying presentation that Article 7 binds it to pay at maturity, or it truncates reimbursement because the nominated bank prepaid. Both outcomes violate the examination-and-honour path.

Failure Mode Analysis

Failure Mode 1: Nominated-Bank Inaction Treated as a Stay of Honour

The issuing bank refuses to honour a deferred-payment or acceptance presentation because the nominated bank did not incur the deferred payment undertaking, did not accept the draft, or did not pay at maturity, and the issuing bank reads that inaction as a freeze. Article 7(a)(iii) states that the issuing bank must honour if the credit is available by deferred payment with a nominated bank and that nominated bank does not incur its deferred payment undertaking or, having incurred it, does not pay at maturity. Article 7(a)(iv) states the matching rule for acceptance. Article 12(a) states that nomination, unless the nominated bank is the confirming bank, does not impose an obligation on that nominated bank to honour or negotiate except when expressly agreed and so communicated to the beneficiary. Nominated-bank silence does not truncate Article 7.

Deterministic resolution: Identify availability under Article 6(b). If deferred payment or acceptance with a nominated bank, and the nominated bank has not incurred, accepted, or paid at maturity, honour under Article 7(a)(iii) or Article 7(a)(iv). Do not recode silence as a stay.

Failure Mode 2: Prepayment Recoded as Immediate Reimbursement — or as Grounds to Refuse It

The issuing bank either demands to reimburse the nominated bank on the prepayment date, or refuses reimbursement because the nominated bank prepaid or purchased before maturity. Article 7(c) states that reimbursement for the amount of a complying presentation under a credit available by acceptance or deferred payment is due at maturity, whether or not the nominated bank prepaid or purchased before maturity. Article 12(b) authorizes the nominated bank to prepay or purchase. Authorization to prepay is not a mutation of the reimbursement date. Refusal because of prepayment violates Article 7(c).

Deterministic resolution: If the nominated bank honoured or negotiated a complying presentation and forwarded the documents, reimburse at maturity. Prepayment is irrelevant to the due date. Do not pull the date forward. Do not refuse because the date was not pulled forward.

Failure Mode 3: Sight Collapse — Draft Hunt on a Deferred-Payment Credit

The examiner refuses a deferred-payment presentation because no draft is attached, or treats honour as sight payment because the word “usance” is absent from the credit. Article 2 defines honour under deferred payment as incurring a deferred payment undertaking and paying at maturity. ISBP 745 B6 states that tenor and maturity calculation also applies to a credit available by deferred payment when there is no requirement for a draft. Article 6(b) requires the credit to state whether it is available by sight payment, deferred payment, acceptance or negotiation. Absence of a draft on a deferred-payment credit is not a discrepancy under Article 7. Absence of the market word “usance” is not a discrepancy under Article 7.

Deterministic resolution: Read Article 6(b) availability. If deferred payment, do not demand a draft under Article 7. Compile maturity under ISBP 745 B6 and ISBP 745 B7. If acceptance, the draft is an ISBP 745 Section B instrument, not an Article 20 transport document. Do not examine a bill of lading under Article 7.

Deterministic Resolution Architecture

1. Availability class. Compile UCP 600 Article 6(b). Sight payment, deferred payment, acceptance, or negotiation. Article 7 does not choose the class.

2. Complying presentation. Apply UCP 600 Article 14(a) on the documents alone. Apply UCP 600 Article 15(a) once the issuing bank determines that the presentation is complying. Do not import goods, services, or performance. UCP 600 Article 5 remains the documents-versus-goods rule. Article 7 is not Article 5.

3. Honour content. Apply Article 2. Deferred payment: incur the deferred payment undertaking and pay at maturity. Acceptance: accept the draft and pay at maturity. Sight: pay at sight. Do not mutate deferred payment into sight.

4. Fallback on nominated-bank default. If availability is with a nominated bank, apply Article 7(a)(iii) or Article 7(a)(iv). Nominated-bank failure to incur, accept, or pay at maturity does not cancel the issuing bank’s honour.

5. Bind date versus pay date. Apply Article 7(b). The issuing bank is irrevocably bound to honour as of issue. Maturity is the pay date of that bind. Do not postpone the bind to maturity.

6. Reimbursement date. Apply Article 7(c). For acceptance or deferred payment, reimbursement to a nominated bank that has honoured or negotiated a complying presentation and forwarded the documents is due at maturity, whether or not that bank prepaid or purchased before maturity. Apply Article 12(b) only as prepay authorization. Decouple it from the due date.

7. Maturity arithmetic, separately. Apply UCP 600 Article 3 and ISBP 745 A15 / ISBP 745 B2(d): “from” and “after” exclude the start date. Apply ISBP 745 B6 if there is no draft. Apply ISBP 745 B7 for immediately available funds on the due date, or on the first following banking day if the due date is not a banking day at the place of payment. Do not route B7 through Article 29.

8. Instrument isolation. Drafts: ISBP 745 B1 to B17. Commercial invoice: UCP 600 Article 18. Bill of lading: UCP 600 Article 20. Insurance: UCP 600 Article 28. Article 7 does not recast those articles. Record the availability class, the honour path (7(a)(i) through 7(a)(v)), the maturity date, and the reimbursement date as four separate fields.

UCP 600 Article 14(d) states that data in a document, when read in context with the credit, the document itself and international standard banking practice, need not be identical to, but must not conflict with, data in that document, any other stipulated document or the credit. Conflict of data is not the honour-at-maturity test. Isolate them.

Conclusion

Article 7 is the issuing bank’s honour and reimbursement architecture, not a sight-payment synonym and not a draft-legend article. For deferred payment, honour means incur the undertaking and pay at maturity. For acceptance, honour means accept the draft and pay at maturity. The issuing bank is irrevocably bound as of issue. Nominated-bank inaction does not stay that bind. Reimbursement to a nominated bank under acceptance or deferred payment is due at maturity whether or not that bank prepaid. Maturity arithmetic lives in Article 3 and ISBP 745 Section B. Examiners who collapse those gates compile the wrong refusal, or the wrong delay.

FAQ

Q1: The nominated bank did not accept the usance draft. Does the issuing bank still have to honour at maturity?

Yes, if the stipulated documents were presented and constitute a complying presentation. Article 7(a)(iv) states that the issuing bank must honour if the credit is available by acceptance with a nominated bank and that nominated bank does not accept a draft drawn on it or, having accepted a draft drawn on it, does not pay at maturity. Article 12(a) states that nomination, unless the nominated bank is the confirming bank, does not impose an obligation on that nominated bank to honour or negotiate except when expressly agreed and so communicated to the beneficiary.

Q2: The nominated bank prepaid a deferred-payment undertaking. Must the issuing bank reimburse immediately?

No. Article 7(c) states that reimbursement for the amount of a complying presentation under a credit available by acceptance or deferred payment is due at maturity, whether or not the nominated bank prepaid or purchased before maturity. Article 12(b) authorizes prepayment or purchase. It does not move the reimbursement date.

Q3: The credit is available by deferred payment. No draft is presented. Is that a discrepancy under Article 7?

No. Article 2 defines honour under deferred payment as incurring a deferred payment undertaking and paying at maturity. ISBP 745 B6 states that the method of calculation of tenor and maturity dates also applies to a credit available by deferred payment when there is no requirement for a draft to be presented by the beneficiary. Article 7 does not add a draft.

Q4: How is “60 days from bill of lading date 4 May” compiled?

UCP 600 Article 3 states that the words “from” and “after” when used to determine a maturity date exclude the date mentioned. ISBP 745 A15 and ISBP 745 B2(d) state the same exclude-the-start-date arithmetic: 10 days after or from 4 May is 14 May. ISBP 745 B2(c) states that when the tenor refers to a period after the bill of lading date, the on board date is deemed to be the bill of lading date even when the on board date is prior to or later than the date of issuance of the bill of lading. That arithmetic is Section B and Article 3. It is not an Article 20 examination of the bill of lading under Article 7.

Q5: The due date is a Saturday at the place of payment. Does Article 29 move honour to Monday, or does the bank pay on Saturday?

Neither Article 29 nor Saturday payment is the B7 gate. ISBP 745 B7 states that payment is to be made in immediately available funds on the due date at the place where the draft or documents are payable, provided that such due date is a banking day in that place, and that when the due date is a non-banking day, payment is due on the first banking day following the due date. Article 29 addresses expiry date and last day for presentation when the bank is closed, and states that the latest date for shipment is not extended. Do not compile presentation-extension into the honour-at-maturity due date.