2. Sender's payment to receiving bank

28. It happens, particularly in transfers by individuals, that an originator does not have an account with the originator's bank and that it pays the amount of the credit transfer plus the applicable fees to the originator's bank in cash. However, in most cases the originator, i.e., the sender, will have an account with the originator's bank, i.e., the receiving bank. It also often happens that a sending bank will have an account with the receiving bank. In any such case, payment to the receiving bank will normally be made by a debit to the account of the sender held by the receiving bank. Since the receiving bank is in a position to determine whether there is a sufficient credit balance in the account, or whether it is willing to extend credit to the sender to the extent of the resulting debit balance, article 6(a) provides that payment is made when the debit is made.

29. The reverse situation may also occur, that is, that the receiving bank maintains an account with the sending bank. Alternatively, both the sending bank and the receiving bank may maintain accounts with a third bank. Then the sending bank can pay the receiving bank by crediting the receiving bank's account or by instructing the third bank to credit the receiving bank's account, as the case may be. The result in either of those two situations is that the credit balance of the receiving bank with the sending bank or with the third bank is increased, with a concurrently larger credit risk. Normally that would be acceptable to the receiving bank. However, on occasion the credit balance, and the resulting credit risk, may be more than the receiving bank was willing to have with the sending bank or the third bank. Therefore, the Model Law provides in article 6(b)(i) and (ii) that payment takes place when the credit "is used [by the receiving bank] or, if not used, on the banking day following the day on which the credit is available for use and the receiving bank learns of that fact". In other words, if the receiving bank does not use the credit and does not wish to bear the credit risk, it has a short period of time to notify the sending bank that the payment is not acceptable to it.

30. When the third bank at which the receiving bank maintains an account is a central bank, whether the central bank of its country or of another country, there is no credit risk (at least when the credit is in the currency of the central bank). Therefore, article 6(b)(iii) says that the payment has been made "when final settlement is made in favour of the receiving bank".

31. A fourth principal means of paying the receiving bank is to net the obligation of the sending bank with other obligations arising out of other payment orders. The netting may be pursuant to a bilateral netting agreement between the two banks. The netting may also be pursuant to "the rules of a funds transfer system that provides for the settlement of obligations among participants either bilaterally or multilaterally". If netting takes place under any of these circumstances, article 6(b)(iv) provides that payment to the various receiving banks for each of the individual payment orders occurs "when final settlement is made in favour of the receiving bank in accordance with" the agreement or the rules.

32. A caveat should be entered at this point. Netting and the consequences of netting in case of the insolvency of one of the parties is a controversial matter. It is the subject of continuing study at the Bank for International Settlements. The Model Law does not take a position as to whether a netting agreement is valid or effective under the applicable law. All it does is to provide when a sending bank pays the receiving bank for an individual payment order where there is a valid netting agreement.