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“Available by negotiation” does not mean the LC itself is a negotiable instrument. It means the nominated bank may purchase drafts and or documents under a complying presentation and pay you before it gets reimbursed by the issuing bank. If you are a seller who wants quicker cashflow without waiting for reimbursement cycles, negotiation is the clause you care about.
Under a documentary credit, the bank pays against documents, not against the physical goods. The LC will state how it is “available” (for example by payment, deferred payment, acceptance, or negotiation) and where presentation must be made. When the LC is available by negotiation, the nominated bank can advance funds to the beneficiary by purchasing the draft and or the documents once a complying presentation is made.
Practical takeaway: negotiation is a bank’s working capital bridge for the beneficiary. You hand in a clean document set, the nominated bank pays, then the nominated bank collects reimbursement from the issuing bank through the LC’s reimbursement mechanics.
A common confusion: “sight” speaks to timing. “Negotiation” speaks to the method of availability and who advances the money. You can see LCs that are effectively paid quickly to the seller, but the mechanics differ.
| Step | What happens |
|---|---|
| 1) LC issuance | Buyer requests LC from issuing bank. LC is advised to the beneficiary through an advising bank. The LC states “available with … by negotiation” and the presentation place. |
| 2) Shipment and document build | Seller ships and prepares the required documents exactly as listed (invoice, transport document, insurance if required, packing list, certificates, inspection documents, and any special conditions). |
| 3) Presentation to nominated bank | Seller presents to the nominated bank within the presentation period and before LC expiry, following the LC’s address and channel rules. |
| 4) Document examination | The bank checks whether the presentation complies on its face. If clean, the bank may negotiate and pay you. If not clean, the bank may refuse, seek waiver, or negotiate with recourse depending on its policy. |
| 5) Forwarding and reimbursement | The negotiating bank forwards documents and claims reimbursement from the issuing bank or reimbursing bank under the LC instructions. |
| 6) Settlement and closing | Issuing bank honours if complying, then releases documents to the buyer for goods release and customs clearance. |
Many LCs are issued via SWIFT MT700. The availability mechanics show up in the “Available With … By …” field. If your business model needs quick seller proceeds, confirm that the LC is available by negotiation with a bank that will actually negotiate (not just “nominated” on paper).
Red flag: “available by negotiation with any bank” sounds flexible, yet it can be a trap if no bank is willing to negotiate without confirmation, tight reimbursement language, or a clean risk profile on the issuing bank.
Public statistics are scarce for “sight vs usance” splits at a global LC level. What is available (and credible) is SWIFT MT700 message data summarized by ICC’s global survey work. In that dataset for export LCs received, “available by negotiation” is the dominant availability method globally, at about 74% in 2019, with slightly lower levels in 2018. Regionally, North America and Asia-Pacific show especially high negotiation shares.
Use this correctly: these numbers refer to the LC “credit rule” availability selection in SWIFT traffic (payment, mixed payment, deferred payment, acceptance, negotiation). It is not the same as “sight vs usance tenor.”
Negotiation is not free money. The negotiating bank is doing operational work and taking payment risk until it gets reimbursed. Pricing varies by issuing bank risk, country risk, document complexity, shipment tenor, and whether the negotiation is with or without recourse.
| Clause type | Why it causes pain |
|---|---|
| Vague “proof” conditions | If the LC asks for non-documentary or subjective conditions, banks struggle to determine compliance, and negotiation becomes slow or impossible. |
| Unworkable transport requirements | Overly strict bill of lading clauses, inconsistent consignee wording, or odd transshipment rules drive discrepancies. |
| Short presentation period | Even a clean shipment can fail on timing. Negotiation requires a compliant presentation within the allowed window. |
| Mismatch across data fields | Names, addresses, Incoterms, quantities, and dates must be consistent across the pack. Banks will not “connect the dots” for you. |
Choose negotiation when you are the seller and you want a realistic path to early proceeds through a nominated bank, especially where reimbursement cycles are slow or where you want the option to discount. If you are the buyer, negotiation can still work, but it pushes more urgency into document compliance because the seller’s bank is now advancing funds.
“Available with [Nominated Bank Name, BIC] by negotiation. Documents to be presented at [address].” Also ensure the LC clearly states drafts requirements (if any), and the tenor mechanics (sight or deferred), plus the reimbursement path.
A one-line clause can decide whether you get paid smoothly or spend weeks fixing discrepancies.
Disclaimer: This guide is informational and does not constitute legal, tax, or banking advice. Documentary credit outcomes depend on the exact LC text, bank policies, jurisdiction, sanctions screening, and document compliance. Always consult qualified counsel and your trade finance bank before relying on any clause.
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