Bank Letter of Credit
Bank letter of credit known as ‘Documentary Credits’ is the most accepted instrument of settling international trade payments. A bank letter of credit is an arrangement whereby Bank acting at the request of a customer (Importer / Buyer), undertakes to pay for the goods / services, to a third party (Exporter / Beneficiary) by a given date, on documents being presented in compliance with the conditions laid down.
This transaction normally involves the following parties:
APPLICANT / OPENER – the buyer of the goods / services (Importer) on whose behalf the credit is issued
ISSUING BANK - the Bank which issues the credit and undertakes to make the payment on behalf of the applicant as per the terms of the L/C
BENEFICIARY - the seller of the goods / services (exporter) for whose Favour the credit is issued and who obtains payment on presentation of documents complying with the terms and conditions of the
LC (Letter of Credit) ADVISING BANK – Banks which advise the LC, certifying its authenticity to the beneficiary are generally banks operating in the country of the beneficiary.
CONFIRMING BANK – A bank which adds its guarantee to the LC opened by another Bank and thereby undertakes responsibility for payment/acceptance/negotiation/incurring deferred payment under the letter of credit in addition to that of the Issuing Bank. It is normally a bank operating in the country of the beneficiary and hence its guarantee adds to the acceptability of the LC for the beneficiary. This is being done at the request / authorization of the Issuing Bank.
NOMINATED BANK – A Bank in an exporter’s country which is specifically authorized by the Issuing Bank to receive, negotiate, etc., the documents and pay the amount to the exporter under the LC