The meaning of cross-border e-commerce letter of credit and its detailed explanation of the parties

1. The meaning of letter of credit

According to the International Chamber of Commerce’s Uniform Customs and Practice for Documentary Letters of Credit, a letter of credit is a written document issued by a bank that promises payment conditionally. Specifically, a letter of credit refers to a letter of credit issued by a bank (issuing bank) to a third party (beneficiary) or a third party (beneficiary) based on specified documents in accordance with the requirements and instructions of the buyer (applicant) or on its own initiative and in compliance with the terms of the letter of credit. The person designated by him makes the payment, or accepts and/or pays the draft drawn by the beneficiary, or authorizes another bank to make the payment, or accepts and pays the draft, or authorizes another bank to negotiate.

2. Parties to the letter of credit

1. Certificate issuance applicant

The applicant (applicant), also known as the issuer (opener), refers to the party who applies to the bank for issuance of a letter of credit, that is, the importer or actual buyer. The issuance application form filled out by the issuance applicant establishes the contractual relationship between the issuance applicant and the issuing bank. The main contractual obligations of the L/C applicant include: final payment responsibility for the L/C and timely payment of the redemption order.

2. Issuing bank

Issuing bank refers to the bank entrusted by the applicant to issue a letter of credit and guarantee payment. It is usually located at the location of the importer. It must strictly abide by the issuance applicant’s instructions to issue a qualified letter of credit, and fulfill its payment commitments on the condition that the documents are consistent and the documents are consistent. The main rights and obligations of the issuing bank include issuing certificates according to the instructions of the issuance applicant, issuing certificates in accordance with the requirements of “UCP600”, assuming independent and first payment responsibility, the right to refuse payment, and the right to obtain pledge. responsibility.

3. Beneficiaries

The beneficiary refers to the party designated by the letter of credit who has the right to use the letter of credit, that is, the exporter or actual supplier. In the letter of credit business, the beneficiary’s acceptance of the letter of credit means that the beneficiary has not only received the payment guarantee from the issuing bank, but also confirmed the payment terms proposed by the issuing bank in the letter of credit. The documents submitted by the beneficiary must be consistent in both documents and documents; the documents submitted by the beneficiary must comply with the provisions of “UCP600”; the beneficiary has the right to request modification of certificates.

4. Advising bank

The advising bank refers to the bank entrusted by the issuing bank to notify or transfer the letter of credit to the beneficiary. It only certifies the apparent authenticity of the letter of credit and notifies the beneficiary of the letter of credit in writing and assumes no other obligations unless authorized by the issuing bank as the confirming bank of the letter of credit. The advising bank is generally located at the exporter’s location, usually a branch or correspondent bank of the issuing bank.

5. Negotiating bank

Negotiating bank refers to the bank that buys the bills of exchange and documents submitted by the beneficiary. The issuing bank can designate a negotiating bank in the letter of credit. If the issuing bank does not specify a negotiating bank when issuing a negotiating letter of credit, any bank that accepts the beneficiary’s presentation for negotiation will be deemed to be the designated negotiating bank. Pay the line.

6. Confirming bank

Confirming bank refers to a bank authorized or invited by the issuing bank to add confirmation (or guarantee payment in its own name) to an irrevocable letter of credit. It must be another bank other than the issuing bank, accept the authorization or entrustment from the issuing bank, and assume the responsibilities of the confirming bank.

7. Paying bank

The paying bank refers to the bank designated by the issuing bank in the letter of credit to pay for the draft under the letter of credit, or the bank that performs payment for the letter of credit that does not require the issuance of a draft. The paying bank is generally the issuing bank itself, or it can be another bank (paying bank) designated by the issuing bank, depending on the terms of the letter of credit.

8. Reimbursement Bank

The reimbursing bank refers to the bank designated by the issuing bank in the letter of credit to repay the advance to the negotiating bank or paying bank on behalf of the issuing bank. The reimbursing bank accepts the entrustment or authorization of the issuing bank and makes reimbursement based on the claim telegram or airmail of the reimbursing bank or negotiating bank, but this reimbursement is not regarded as final payment by the issuing bank.

9. Accepting bank

The accepting bank refers to the bank that accepts the draft under the letter of credit and signs on the front of the draft and promises to pay when due after reviewing the document and confirming that it is consistent with the provisions of the letter of credit. The accepting bank can be the issuing bank itself, the advising bank or other designated bank. If the accepting bank goes bankrupt or loses its ability to pay after accepting the bill, the issuing bank will bear the final payment responsibility.

10. Transferring bank and second beneficiary

The transferring bank is the bank that transfers the transferable letter of credit to the transferee of the letter of credit (the second beneficiary) upon the entrustment of the beneficiary (also called the first beneficiary when transferring the letter of credit) bank. The second beneficiary refers to the beneficiary of a transferable letter of credit who accepts the transfer, also known as the assignee or transferee of the letter of credit. After the second beneficiary accepts the letter of credit, the transferable letter of credit cannot be transferred to other people for use, but it is allowed to be transferred back to the first beneficiary of the letter of credit, that is, the original beneficiary of the letter of credit.