Recourse

Recourse in foreign trade and finance refers to the right of the holder of a negotiable instrument to demand repayment from prior parties (endorsers, drawer) or guarantors when the payer refuses payment or becomes insolvent. It is commonly seen in letters of credit, bills of exchange, and documentary collections. For example, under a negotiation credit, if the issuing bank refuses payment due to discrepancies after the negotiating bank has paid the beneficiary, the negotiating bank may exercise recourse against the beneficiary. In collections, banks as agents typically have no recourse obligation, but if the bank has advanced funds, it may retain the right of recourse. When using recourse, note: 1) Whether the right of recourse exists, e.g., whether the credit states 'without recourse'; 2) The time limit and procedures for recourse, requiring protest and notice of recourse within the statutory period; 3) Distinguish 'recourse' from 'recovery', the latter often referring to recourse after a guarantor has paid. Opposite to 'with recourse' is 'without recourse', meaning the holder waives recourse and bears the risk. Foreign trade practitioners should carefully assess counterparty credit and reasonably use recourse clauses to protect their rights.