At present, letters of credit are the most important settlement method widely used in international trade settlement.
There are three basic parties to a letter of credit, namely the applicant, the issuing bank and the beneficiary. In addition, there are other parties, namely the notifying bank, the negotiating bank, the paying bank, the reimbursing bank, the confirming bank, the accepting bank and the second beneficiary of the transferring bank.
①Applicant. Also known as the opener or the accountee, it refers to the person who applies to the bank for the opening of a letter of credit, generally the importer, that is, the buyer of the sales contract. The applicant is the initiator of the letter of credit transaction.
②Issuing bank (opening bank; issuing bank) refers to the bank that opens a letter of credit at the request of the applicant or for its own benefit, generally the bank in the importing place. The rights and obligations of the opener and the issuing bank are based on the application for the opening of the letter of credit. Once the letter of credit is issued, the issuing bank is responsible for the payment according to the terms of the letter of credit. ③ Beneficiary refers to the person who is designated in the letter of credit and has the right to use the letter of credit, usually the exporter, that is, the seller of the sales contract. The beneficiary is usually also the addressee of the letter of credit. He has the right to issue a bill of exchange according to the provisions of the letter of credit and to claim the price from the designated paying bank, but he is also legally responsible for guaranteeing that the bill of exchange will be accepted and paid to the subsequent holder as the drawee of the bill of exchange. ④ Notifying bank refers to the bank that notifies the letter of credit at the request of the issuing bank. The notifying bank is generally a bank in the exporter’s location, and is usually the correspondent bank of the issuing bank. If the notifying bank is willing to notify the beneficiary of the letter of credit, it should identify the apparent authenticity of the letter of credit. If it is unwilling to notify or unable to identify, it must inform the issuing bank without delay; if it is unable to identify but decides to notify the beneficiary, it must inform the beneficiary that it has failed to identify the apparent authenticity of the letter of credit when notifying. In addition, the notifying bank does not have to bear any responsibility for payment or negotiation. ⑤ Negotiating bank, also known as documentary bank, bill purchasing bank or discount bank, refers to the bank that purchases or discounts bills and/or documents according to the authorization of the issuing bank. The issuing bank may specify a negotiating bank in the letter of credit, or may not specify a negotiating bank in the letter of credit. In the case of not specifying a negotiating bank, all banks are banks with the right to negotiate. If the negotiating bank examines the documents and finds them correct, it can advance the money for the bills and/or documents, and pay the net amount to the beneficiary after deducting the advance interest. In the letter of credit business, the negotiating bank usually appears as the designated beneficiary and the bona fide holder of the bill of exchange, so it has the right of recourse against the payment of the beneficiary of the letter of credit as the drawee. ⑥ Paying bank (paying bank; drawee bank). The paying bank is the bank authorized by the issuing bank to make payments under the letter of credit or to accept and pay the bills issued by the beneficiary. The paying bank is usually the drawee of the bill of exchange, so it is also called the drawee bank. The issuing bank is usually also the paying bank, but the paying bank can also be another bank that accepts the issuing bank’s authorization to make payments on its behalf. For example, when the letter of credit is paid in a third country’s currency, a bank in the country that issued the currency is usually designated as the paying bank. This kind of paying bank is also called a paying bank agent. The paying bank is like a general drawee of a bill of exchange. Once the payment is made, even if it is found to be wrong later, it has no recourse against the payee.