It is a conditional payment method where the buyer’s bank issuing the letter of credit (issuing bank) is under obligation against the seller (exporter).
It is a payment method where a bank (issuing bank) acting in line with the instructions of a buyer (Applicant) makes a payment commitment in favor of the beneficiary up to a specific amount against the proof of the fulfilment of the conditions specified in the letter of credit with the submission of documents specified in the letter of credit. The payment under the letter of credit is made as specified in the letter of credit on condition that the documents mentioned in the letter of credit are submitted within the specified periods of time.
The seller, in favor of whom the documentary credit is issued (beneficiary), receives a payment guarantee from the issuing bank against the fulfilment of the conditions and carries out the shipment of the goods subject to the letter of credit and then submits the documents requested under the letter of credit to the issuing bank through its bank. If the submission is made on time and in accordance with the conditions of the letter of credit, the beneficiary is entitled to receive payment under the letter of credit. If the Seller fails to act in accordance with the conditions of the letter of credit, the bank (issuing bank) and the buyer shall have no payment obligation. Therefore, the letter of credit is a method of payment which protects both the buyer and the seller.
Applicant: The party which applies to its bank to initiate the letter of credit process in order to buy the goods or service subject to the letter of credit.
Issuing Bank: The bank which issues the letter of credit in line with the instructions of the Applicant and makes payment commitment in favor of the beneficiary under the letter of credit.
Beneficiary: The seller in favor of whom the documentary credit is issued.
Advising Bank: It is the bank that advises the issued letter of credit to the beneficiary. *
Confirming Bank: It is the bank which, in line with the request of the beneficiary and authorization of the issuing bank, makes payment commitment in favor of the beneficiary under the letter of credit in addition to the payment obligation of the issuing bank.
Confirmed Letter of Credit
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