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A
Letter of Credit, simply defined, is a written instrument issued
by a bank at the request of its customer, the Importer (Applicant),
whereby the bank promises to pay the Exporter (Beneficiary)
for goods or services, provided that the Exporter presents all
documents called for, exactly as stipulated in the Letter of
Credit, and meets all other terms and conditions set out in
the Letter of Credit. A Letter of Credit is also commonly referred
to as a Documentary Credit.
Parties
to a Letter of Credit
Accepting Bank: The bank named
in a term Letter of Credit on which drafts are drawn that
has agreed to accept the draft. By accepting the draft, the
Drawee Bank signifies its commitment to pay the face amount
at maturity to anyone who presents it at maturity. After accepting
the draft, the Drawee Bank becomes the Accepting Bank.
Advising Bank: The bank to which
the Issuing Bank sends the Letter of Credit, with instructions
to notify the Exporter (Beneficiary).
"Available with" Bank:
The Bank authorized in the Letter of Credit to effect payment
under, accept or negotiate the Letter of Credit.
Confirming Bank:
The bank which, at the request of the Issuing Bank, adds its
confirmation to the Letter of Credit. In doing so, the Confirming
Bank undertakes to make payment to the Exporter under the
Letter of Credit assuming all terms and conditions of the
Letter of Credit have been met.
Drawee Bank:
The bank named in the Letter of Credit on which the drafts
are to be drawn.
Exporter/ Beneficiary/ Seller:
The party that has contracted to sell goods.
Importer/ Applicant/ Buyer:
The party that has contracted to buy goods.
Issuing Bank:
The bank issuing the Letter of Credit at the request of its
customer the Importer (Applicant) in favour of the Exporter
(Beneficiary).
Reimbursing Bank:
The bank designated in the Letter of Credit to reimburse the
"available with" bank which submits payment claims
under the Letter of Credit.
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Highlights
