March 3, 2024

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Transforming Houses Into Homes

Players in 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 that connects the exporter and the importer with the purpose of having a transaction.

Two, it functions as a link between the importer and the banks. The importer convenes with the issuing bank to create a letter of credit in order to pay the exporter and which is subject to the terms and conditions of the agreement.

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

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 meeting the terms and / or conditions set out therein.

The beneficiary of the letter of credit is the person who has the right to turn against the letter of credit and require payment of the same by submitting the documents in this.

The banks most commonly found in letters of credit are:

Issuing Bank: Gives the letter of credit to the beneficiary on the order of the importer. Acquired responsibility for the payer to notify the seller and pay through our correspondent bank once it has met the terms and conditions set out in the letter of credit.

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 confirmers on Confirmed letters of credit.

The notifying bank. If the bank of the originator does not have a branch in the country of the beneficiary, the latter uses a notifying bank. This bank informs the beneficiary if a letter of credit has been open to his or her favor. Notifying banks do not have obligations against the beneficiaries, only in absence of a confirming bank.