Role of 8 different parties usually involved in Letter of Credit
Documentary Letter of Credit:
A letter of credit is a letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount. In the event that the buyer is unable to make payment on the purchase, the bank will be required to cover the full or remaining amount of the purchase.
The major parties involved in a letter of credit are discussed below. We can classify mainly eight main parties involved in a Letter of Credit.
A letter of credit is a letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount. In the event that the buyer is unable to make payment on the purchase, the bank will be required to cover the full or remaining amount of the purchase.
The major parties involved in a letter of credit are discussed below. We can classify mainly eight main parties involved in a Letter of Credit.
Applicant of Letter of Credit.
Applicant is one of the main parties involved in a Letter of Credit. Who is an applicant under Letter of credit?
Applicant is the party who opens Letter of Credit. Normally, buyer of goods is the Applicant who opens letter of credit. Letter of credit is opened as per his instruction and necessary payment is arranged to open Letter of credit with his bank. The applicant arranges to open letter of credit with his bank as per the terms and conditions of Purchase order and business contract between buyer and seller. So Applicant is one of the major parties involved in a Letter of credit.
LC Issuing Bank
Issuing Bank is one of the other main parties involved in an LC. Who is an Issuing Bank under Letter of credit?
Issuing Bank is the bank who opens letter of credit. Letter of credit is created by issuing bank who takes responsibility to pay amount on receipt of documents from supplier of goods (beneficiary under LC).
Beneficiary party
Beneficiary is one of the main parties under letter of credit. Beneficiary of Letter of credit gets the benefit under Letter of credit. Beneficiary is the party under letter of credit who receives amount under letter of credit. The LC is opened on Beneficiary party’s favor. Beneficiary party under letter of credit submits all required documents with is bank in accordance with the terms and conditions under LC.
Advising Bank
Advising bank is another party involved under LC. Advising bank, as a part of letter of credit takes responsibility to communicate with necessary parties under letter of credit and other required authorities. The advising bank is the party who sends documents under Letter of Credit to opening bank.
Confirming Bank
Confirming bank is one of the other parties involved in Letter of Credit. Confirming bank as a party of letter of credit confirms and guarantee to undertake the responsibility of payment or negotiation acceptance under the credit.
Negotiating Bank
Negotiating bank is one of the main parties involved under Letter of Credit.
Negotiating Bank, who negotiates documents delivered to bank by beneficiary of LC. Negotiating bank is the bank who verifies documents and confirms the terms and conditions under LC on behalf of beneficiary to avoid discrepancies
Reimbursing Bank
Reimbursing Bank is one of the parties involved in an LC. Reimbursing bank is the party who authorized to honor the the reimbursement claim of negotiation/ payment/ acceptance.
Second Beneficiary
Second beneficiary is one of the other parties involved in Letter of Credit.
Second beneficiary who represent the first beneficiary or original beneficiary in their absence, where in the credits belongs to original beneficiary is transferable as per terms.
Second beneficiary who represent the first beneficiary or original beneficiary in their absence, where in the credits belongs to original beneficiary is transferable as per terms.
Category: Documentary Letter of Credit, Foreign Exchange, International Trade and Foreign Exchange, Parties of Letter of Credit
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