Players on a letter of credit

Letters of credit have three main characters, the originator, the beneficiary and the banks.

The role of the originator in the creation of the letter of credit is:

One, to function as a link connecting the exporter and the importer in order to have a transaction.

Two, it works as a link between the importer and the banks. The importer agrees with the issuing bank to create a letter of credit to pay the exporter and that is subject to the terms and conditions of the agreement.

A letter of credit must have the participation of at least one financial institution. Banks play a very important role in international trade because they not only give credit to importers and exporters, but also determine whether or not the terms and conditions of the letter of credit have been followed by the exporter and therefore proceed to the pay.

The Beneficiary (Seller): The exporter who is in favor of issuing the letter of credit. He or she has the right to demand payment after complying with the terms and/or conditions established therein.

The beneficiary of the letter of credit is the person who has the right to oppose the letter of credit and demand payment thereof by presenting the documents in it.

The banks most commonly found in letters of credit are:

Issuing Bank: Grants the letter of credit to the beneficiary by order of the importer. The responsibility is acquired for the payer to notify the seller and pay through our corresponding bank once the terms and conditions established in the letter of credit have been complied with.

Confirming banks play the other role. They are located in the country of the exporter and are the ones that provide the payment given by the letter of credit. These banks respond to issuers and confirm confirmed letters of credit.

The notifying bank. If the originator’s bank does not have a branch in the beneficiary’s country, the beneficiary uses a reporting bank. This bank informs the beneficiary if a letter of credit has been opened in his favor. Notifying banks have no obligations towards beneficiaries, only in the absence of a confirming bank.