Meaning of Letter of credit

The buyer's bank issues the L/C at the buyer's request, and the buyer's bank guarantees payment on the due date, subject to the submission of documents per the L/C's terms and conditions. As a result, the seller is assured payment against the supplies made, and the buyer is assured of receiving the goods under the terms and conditions. It also gives the buyer a credit period during which they can obtain financing against the L/C both pre and post-shipment.

 Meaning of Advising of Letter of Credit

A Letter of Credit initiated by the buyer is normally received by a bank in India, which intimates it to the exporters. It is considered as "Advising of Letter of Credit." The bank doing that procedure is addressed as Advising Bank. An advising bank serves as the issuing bank's representative. The advising bank's job is to take reasonable care to verify the validity of credits and then accurately transfer them to their beneficiaries. The bank assumes no other responsibility when advising a letter of credit. Even if it was expressly identified as the paying bank in the letter of credit, the advising bank would pay the exporter only if it has obtained good funds from the issuing bank upon receipt of the documents for inspection and payment.

The credit rating or creditworthiness of the Letter of Credit opening bank or country may not be acceptable to the exporter or exporter's bank at times. In such situations, another bank may provide comfort by agreeing to make the payment contingent on the submission of documents and compliance with the terms and conditions specified in the Letter of Credit, known as a "Letter of Credit Confirmation."When a letter of credit is verified, the advising or another bank assumes the same obligations as the issuing bank, including the control to pay against submitted documents if they are in order, i.e., all of the L/C terms are met. In addition, the beneficiary has two banks' individual promises to pay against conforming documents: the issuing bank and the confirming bank.

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