Month: November 2020

What Terms Are Crucial To Understanding Letters Of Credit

Letters of credit can give both buyers and sellers much needed security when they opt for international payments. Banks like columbia bank marlboro make international trade easier and handle your money well.

By knowing a few terms connected to letters of credit, you can improve your banking experience. Read ahead to an introduction to some of this terminology.

Beneficiary

This refers to the person who will receive the payment that is made. In most cases, this is the seller. In international trade, the exporter offers a product or service in exchange for the money.

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Applicant

An applicant refers to the person who requests the letter of credit. This is the party that makes the payment and is mostly the buyer. In international trade, this refers to the person who imports a product.

The issuing bank

This is the bank that is often located in the home country of the applicant. It is associated with the country where the buyer stays.

The negotiating bank

This is the bank that is often situated in the home country of the beneficiary. This refers to a bank where the seller may already have accounts. To use the letter of credit, the beneficiary hands the documents over to this bank.

The negotiating bank then acts as a mediator between the beneficiary and other banks.

The confirming bank

If the letter of credit requirements are adhered to, the confirming bank guarantees payment to the beneficiary. In most cases, the negotiating bank and the confirming bank are the same.

These are the most prominent terms associated with letters of credit. There are other terms that ad to the concept and will help you gain a much deeper understanding. By paying attention to the above basics, you will make the best out of your letters of credit.