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The best way to understand the process is to follow it from beginning to end.

1. The applicant and the beneficiary agree on terms of sale where the beneficiary will be paid at sight.

2. The applicant approaches their bank requesting a letter of credit and asking that they be able to
finance the transaction for 180 days sight.

3. The issuing bank issues the UPAS letter of credit requiring the draft at 180 days sight drawn on the
reimbursing bank and stating that the beneficiary is to be paid at sight with all interest charges for the
account of the applicant. The letter of credit will also state the reimbursing bank which is normally the
local branch of the issuing bank.

The issuing bank will also send a reimbursement authorization with the same payment terms as the
letter of credit to the reimbursing bank. The authorization will also request the reimbursing bank to
accept and discount the draft as per an agreement between the issuing bank and the reimbursing bank.

4. Given that the beneficiary will be paid on a sight basis, they ship the goods and present the required
documents to their local bank.

5. The local bank examines the documents and if the documents are in order proceeds with the
reimbursement claim as follows:

A. The original documents except for the draft are forwarded to the issuing bank

B. The draft plus a cover letter is sent to the reimbursing bank.

6. The reimbursing bank will receive the draft and act in accordance to the reimbursement authorization
by accepting and discounting the draft. The face amount of the draft is then sent to the beneficiary's
bank (less possible minimal reimbursing fees [usually around USD100.00]) Funds for the payment will
come from a long term suspense account of the reimbursing bank.

The reimbursing bank will then contact the issuing bank and let them know that the draft was presented,
accepted and discounted. They will also let them know the maturity date of the draft and all fees
associated with the acceptance and discount of the draft.

7. The issuing bank receives the message from the reimbursing bank and the documents from the
beneficiary's bank. The issuing bank examines the documents, and provided the documents comply,
advises the applicant of the maturity date and all fees. The issuing bank also provides the applicant with
the documents so that the applicant can obtain the goods.
8. The beneficiary's bank, having received the funds from the reimbursing bank deducts any fees and
remits payment to the beneficiary.

9. 180 days after sight, the issuing bank provides the reimbursing bank funds to cover the payment of the
letter of credit plus the fees for the UPAS draft (the UPAS draft fees may be paid up front, depending on
the agreement between the issuing bank and the reimbursing bank).

10. 180 days after sight, the issuing bank collects the draft amount plus all fees from the applicant (the
fees may be collected up front depending on the agreement between the issuing bank and the applicant.

- It is important to note that the payment from the issuing bank to the reimbursing bank is separate
from the payment from the applicant to the issuing bank, as the reimbursing bank is taking on the risk
of the issuing bank, and it is the obligation of the issuing bank to pay the reimbursing bank from its
own funds even if payment is never received from the applicant.

OK, so that's the basic timeline of how it works. Now the big question is why do they do it this way and
who gets what benefits.

1. Obviously this is the best scenario for the beneficiary, as they do not have to provide financing terms
within the letter of credit and wait for payment. They get their invoice amount up front. This is also the
easiest way for the beneficiary to price the goods, because if they had to wait 180 days for the funds, the
price would go up.

2. The applicant also benefits from this scenario in a couple of way.

A. They get financing of 180 days

B. The unit price of each good sold is lower, so the amount of import duties may be lessened.

C. They have a happy supplier who will work with them

D. They can get a good rate on the discount as the regulations in the discounting country could be less
restrictive.

3. The reimbursing bank benefits by having added business. They collect the acceptance and discount
fee.

4. The issuing bank benefits because they are able to provide this service to the customer, and the
discounted amount is subject to different local regulations (i.e. reserve requirements) since they have not
released any funds for a loan.
As you can see the UPAS can be beneficial for all parties.