Focus on Definitions: Reimbursing Bank vs. Claiming Bank (URR 725)

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Focus on Definitions: Reimbursing Bank vs. Claiming Bank (URR 725)

1. What is a Reimbursing Bank?

Definition:
The Reimbursing Bank is the bank authorized by the Issuing Bank (the bank that opens the LC) to settle payment claims from other banks. Think of it as the Issuing Bank’s "payment agent."
Key Responsibilities:
Processes reimbursement claims strictly based on the Reimbursement Authorization (RA).
Does NOT check documents (like invoices or Bills of Lading) – that’s the Claiming Bank’s job.
Must pay compliant claims within 3 banking days (URR 725 Article 9).
Example:
An Indian importer (Applicant) opens an LC through Bank A (Issuing Bank) to pay a German exporter (Beneficiary). Bank A nominates Bank B (Reimbursing Bank) in the U.S. (a USD correspondent bank) to handle reimbursements. When the German exporter’s bank (Claiming Bank) submits a valid claim, Bank B transfers funds from Bank A’s account.

2. What is a Claiming Bank?

Definition:

The Claiming Bank is the bank (often the Negotiating Bank or Confirming Bank) that pays the exporter (Beneficiary) and then seeks reimbursement from the Reimbursing Bank.

Key Responsibilities:

Verifies documents against the LC terms before paying the Beneficiary.

Submits a reimbursement claim to the Reimbursing Bank with a Certificate of Compliance.

Bears responsibility for discrepancies in the claim.

Example:

A German exporter submits shipping documents to Bank C (Claiming Bank) under an LC issued by Bank A. Bank C checks the documents, confirms compliance, pays the exporter €100,000, and then claims reimbursement from Bank B (Reimbursing Bank) in USD.

3. Key Differences with Examples

Key Differences: Reimbursing Bank vs. Claiming Bank (URR 725)

Aspect	Reimbursing Bank	Claiming Bank
Role	Acts as the Issuing Bank’s payment agent.	Pays the Beneficiary and claims reimbursement.
Document Check	No – only checks claim against the RA.	Yes – verifies LC compliance before payment.
Liability	Pays only if the claim matches the RA.	Responsible for document discrepancies.
Example Scenario	Bank B (USA) reimburses Bank C (Germany).	Bank C (Germany) pays exporter and claims from Bank B.

4. Real-Life Scenarios to Avoid Confusion

Scenario 1: The Typo Disaster

Claiming Bank’s Mistake: Bank C submits a reimbursement claim for USD 150,000 but mistakenly references Invoice #123 (correct invoice is #124).

Reimbursing Bank’s Action: Bank B rejects the claim immediately because the RA specifies Invoice #124.

Takeaway: The Claiming Bank bears the risk of errors, not the Reimbursing Bank.

Scenario 2: The Missing Reimbursement Undertaking

Issue: Bank A (Issuing Bank) sends an RA to Bank B (Reimbursing Bank) but forgets to include a Reimbursement Undertaking.

Result: Bank B can refuse the claim if it suspects fraud, even if documents are compliant.

Takeaway: A Reimbursement Undertaking (optional under URR 725) adds security for the Claiming Bank.

5. Why This Matters for IIBF Exams

Exam Focus: Expect questions on roles, responsibilities, and timelines (e.g., 3-day rule).

Trap Questions:

“Who checks documents under URR 725?” → Claiming Bank.

“Can the Reimbursing Bank reject a claim for LC discrepancies?” → No (only for RA mismatches).

6. Key Takeaways

Reimbursing Bank = Payment agent; Claiming Bank = Document checker and claimant.

The Reimbursing Bank never re-examines documents.

Discrepancies in claims are the Claiming Bank’s liability.

Visual Summary:

Issuing Bank (India) ↓ Reimbursing Bank (USA) ← Processes claims ↑ Claiming Bank (Germany) → Checks docs, pays exporte

Need more examples? Comment below! For IIBF exam success, bookmark this guide and revisit the MCQs on IIBFPro.