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Who's Involved with a Letter of Credit?
Sources:International Trade Law, Time:2015-01-06 15:34, Click:, Comment

 Whos Involved with a Letter of Credit?

  Letters of credit can be confusing. The process is complex, and the lingo can leave you wondering who does what. This page describes the key players in a letter of credit transaction.

For more information, read an overview of How Letters of Credit Work.

Applicant: the party who requests the letter of credit. This is the person or company that will pay the beneficiary. The applicant is often (but not always) an importer or buyer who uses the letter of credit to make a purchase.

Beneficiary: the party who receives payment. This is often a seller or exporter who has requested that the applicant use a letter of credit (because the beneficiary wants more security).

Issuing bank: the bank that creates or issues the letter of credit at the applicant’s request.

It is typically a bank where the applicant already does business (in the applicant’s home country, where the applicant has an account or a line of credit).

Negotiating bank: the bank that works with the beneficiary. This bank is generally located in the beneficiary’s home country, and may be a bank where the beneficiary already conducts business. The beneficiary will submit documents to the negotiating bank, and the negotiating bank acts as a liaison between the beneficiary and other banks involved.

Confirming bank: a bank that “guarantees” payment to the beneficiary as long as the requirements in the letter of credit are met. Payment is already guaranteed by the issuing bank, but the beneficiary may prefer a guarantee from a bank in her home country (with which she is more familiar). This may be the same bank as the negotiating bank.

  Advising bank: the bank that receives the letter of credit from the issuing bank and notifies the beneficiary that that the letter is available. This bank is also known as the notifying bank, and may be the same bank as the negotiating bank and the confirming bank.

Intermediary: a company that connects buyers and sellers, and which sometimes uses letters ofcredit to facilitate transactions. Intermediaries often use back-to-back letters of credit (or transferable letters of credit).

Freight forwarder: a company that assists with international shipping. Freight forwarders often provide the documents exporters need to provide in order to get paid.

Shipper: the company that transports goods from place to place.

Legal counsel: a firm that advises applicants and beneficiaries on how to use letters of credit. It’s essential to get help from an expert.

Now that you know whos who, learn about the different types of letters of credit.


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