The basic parties to a letter of credit include the applicant, the issuing bank and the beneficiary, and other parties include the notifying bank, the negotiating bank, the confirming bank, the paying bank, the reimbursing bank, the accepting bank, etc.
1. Applicant
The applicant (applicant), also known as the opener, is the party who applies to the bank for the issuance of a letter of credit, that is, the importer or the actual buyer. The application form filled out by the applicant establishes the contractual relationship between the applicant and the issuing bank. The main contractual obligations of the applicant include: assuming the final payment responsibility for the letter of credit and paying the bill in time.
2. Issuing bank
The issuing bank refers to the bank that is entrusted by the applicant to issue a letter of credit and guarantee payment, and is generally located in the importer’s location. It must strictly abide by the instructions of the applicant to issue a qualified letter of credit and fulfill its payment commitment under the conditions of consistency between the bill and the document.
The obligations and rights of the issuing bank in the letter of credit business are mainly stipulated by three aspects of contractual relationships: first, the contractual relationship with the applicant established by the letter of credit application, second, the contractual relationship with the beneficiary established by the letter of credit, and third, the entrustment request to the notifying bank, negotiating bank, paying bank, confirming bank, etc. expressed in the letter of credit. If the entrusted bank accepts the entrustment, the issuing bank will establish an agency relationship with it. The main rights and obligations of the issuing bank include opening the letter of credit according to the instructions of the applicant, opening the letter of credit in accordance with the requirements of “UCP600”, assuming independent and primary payment responsibilities, the right to refuse payment, the right to obtain pledge, and the responsibility to its entrusted bank.
3. Beneficiary
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 obtained the payment guarantee of the issuing bank, but also confirmed the payment terms proposed by the issuing bank in the letter of credit. The rights and obligations of the beneficiary stipulated by the letter of credit are as follows: the documents submitted by the beneficiary must be consistent with the documents and the documents; the documents submitted by the beneficiary must comply with the provisions of “UCP600”; the beneficiary has the right to request a change in the letter of credit.
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 proves the apparent authenticity of the letter of credit and notifies the beneficiary of the letter of credit in writing, and does not assume other obligations unless authorized by the issuing bank as the confirming bank of the letter of credit. The advising bank is generally located in the exporter’s location, usually a branch or agency of the issuing bank.
5. Negotiating Bank
Among the various payment methods of letters of credit, negotiation is the most common one. The negotiating bank refers to the bank that buys the bills and documents submitted by the beneficiary. The issuing bank may designate a negotiating bank in the letter of credit. If the issuing bank does not designate a negotiating bank when issuing a negotiation letter of credit, any bank that accepts the beneficiary’s documents for negotiation shall be deemed to be the designated negotiating bank.
6. Confirming bank
A confirming bank is a bank that the issuing bank authorizes or invites to add a confirmation to an irrevocable letter of credit (or guarantees payment in its own name). It must be another bank other than the issuing bank, accept the authorization or entrustment of the issuing bank, and assume the responsibilities of the confirming bank.
7. Paying bank
A paying bank is a bank designated by the issuing bank in the letter of credit to pay for the bills under the letter of credit, or a bank that executes payment for a letter of credit that does not require the issuance of a bill of exchange. The paying bank is generally the issuing bank itself, or it can be another bank designated by the issuing bank (paying bank), depending on the specific provisions of the letter of credit.
8. Reimbursing Bank
Reimbursing bank refers to the bank designated by the issuing bank in the letter of credit to repay the advance payment to the negotiating bank or the paying bank on behalf of the issuing bank.
9. Accepting Bank
The accepting bank accepts the time draft issued by the beneficiary and pays the beneficiary when it matures. In the acceptance letter of credit, the issuing bank can stipulate in the letter of credit that it or another designated bank will be the payee of the draft. The designated bank is the accepting bank.