Negotiation Under a Letter of Credit Explained
What 'negotiation' means under UCP 600 and how a credit available by negotiation pays the exporter.
Reviewed by LCCheck team (owner-approved) · 2026-10-12
Short answer
UCP 600 Article 2 defines negotiation as the nominated bank's purchase of drafts and/or documents under a complying presentation, by advancing or agreeing to advance funds to the beneficiary before the bank is reimbursed. A credit 'available by negotiation' lets the exporter get funds from the nominated bank rather than waiting for the issuing bank.
| Definition | UCP 600 Art. 2 |
|---|---|
| MT700 | Field 41a 'BY NEGOTIATION' |
| Recourse | Unconfirmed negotiation is usually with recourse |
Key points
- Merely examining documents is not negotiation.
- A nominated bank need not negotiate unless it has confirmed (Art. 12(a)).
- Freely negotiable credits can be negotiated by any bank.
For exporters
- Ask your bank whether it will negotiate and on what terms.
- Confirmed negotiation is normally without recourse.
Sources
- ICC — UCP 600 (Uniform Customs and Practice for Documentary Credits)
- Swift — MT700 Issue of a Documentary Credit (category 7 standards)
General guidance, not legal advice. Your bank examines documents independently.
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