Critical Timelines OR 3-Day Payment Rule) under URR 725

Critical Timelines OR 3-Day Payment Rule under URR 725

1. The 3-Day Payment Rule: URR 725 Article 9

Rule:

The Reimbursing Bank must honor a compliant reimbursement claim within 3 banking days after determining the claim aligns with the Reimbursement Authorization (RA).

Start Point: The timeline begins once the Reimbursing Bank confirms the claim’s compliance with the RA.

Key Points:

Banking Days: Excludes weekends and public holidays observed by the Reimbursing Bank.

Compliance Check: The Reimbursing Bank verifies only if the claim matches the RA (not document compliance, which is the Claiming Bank’s responsibility).

Non-Compliance: If discrepancies exist, the Reimbursing Bank must notify the Claiming Bank immediately, pausing the timeline until resolved.

2. Why the 3-Day Rule Matters

Speed in Trade Finance: Ensures timely settlements, reducing cash flow gaps for exporters.
Standardization: Creates predictability in global LC transactions.

Risk Mitigation: Prevents arbitrary delays by holding Reimbursing Banks accountable.

3. Interaction with UCP 600 Timelines

UCP 600: Governs document examination by banks (e.g., the Claiming Bank has 5 banking days to check documents).

URR 725: Focuses on interbank reimbursement after document compliance is confirmed.

Process Flow:

Claiming Bank checks documents under UCP 600 (5-day window).

Claiming Bank submits reimbursement claim to Reimbursing Bank.

Reimbursing Bank verifies RA compliance and pays within 3 banking days.

4. Examples to Clarify the Timeline

Example 1: Straightforward Case

Monday: Claiming Bank submits a compliant claim.

Tuesday: Reimbursing Bank confirms compliance.

Deadline: Payment must be made by Thursday (3 banking days: Tue, Wed, Thu).

Example 2: Holiday Impact

Wednesday: Claiming Bank submits a compliant claim.

Thursday: Reimbursing Bank confirms compliance.

Friday: Public holiday in the Reimbursing Bank’s country.

Deadline: Payment due by Tuesday (3 banking days: Thu, Mon, Tue).

Example 3: Discrepancy Scenario

Monday: Claiming Bank submits a claim with mismatched invoice numbers.

Tuesday: Reimbursing Bank identifies discrepancies and notifies the Claiming Bank.

Wednesday: Claiming Bank resubmits corrected documents.

Thursday: Reimbursing Bank confirms compliance.

Deadline: Payment due by Monday (3 banking days: Thu, Fri, Mon).

5. Common Exam Traps & How to Avoid Them

Misinterpreting "Banking Days":

Trap: Assuming weekends/holidays count.

Solution: Always exclude non-working days based on the Reimbursing Bank’s calendar.

Conflicting Timelines with UCP 600:

Trap: Mixing UCP 600’s 5-day document check with URR 725’s 3-day rule.

Solution: Treat them as separate steps (document check first, reimbursement second).

Discrepancy Handling:

Trap: Assuming the 3-day rule applies to non-compliant claims.

Solution: The clock starts only after discrepancies are resolved.

6. Practical Implications for Banks

Reimbursing Bank: Must prioritize efficient RA compliance checks to avoid delays.

Claiming Bank: Ensure claims are error-free to trigger the 3-day timeline.

Issuing Bank: Must maintain sufficient funds with the Reimbursing Bank to avoid defaults.

7. Exam Tips

Memorize:

Article 9 of URR 725 mandates the 3-day rule.

Timeline starts after compliance confirmation, not claim receipt.

Practice: Use hypothetical dates with holidays to test understanding.

8. Summary

The 3-day payment rule under URR 725 ensures swift interbank settlements, fostering trust in global trade. For IIBF exams, focus on:

The 3 banking day deadline.

Exclusion of weekends/holidays.

The Reimbursing Bank’s role in compliance checks.

Visual Recap:

Claim Submission → Compliance Check (Reimbursing Bank) → 3 Banking Days → Payment