Introduction to the way of settlement of letters of credit

Introduction to the way of settlement of letters of credit

Introduction to the way of settlement of letters of credit

The letter of credit is a revolution in the payment method of international trade in the 19th century. For the first time, this type of payment made the buyers and sellers who were not on the delivery site in the same position when performing the contract. To a certain extent, they regained the "hands-on" The security of the on-the-spot exchange of money and one-handed delivery solves the contradiction between the two sides. We know that the use of remittance to make the expected payment is the buyer's disadvantage, and the use of remittance for late payment is the seller's disadvantage, and the collection method, even the immediate payment method, for the seller It is also a late payment. Because the seller must be shipped to obtain a full set of receipts. Once the buyer refuses to pay the goods, even if the ownership of the goods is still in the hands of the seller, the seller’s loss is still unavoidable.

In order to make both buyers and sellers in the same position, people invented the letter of credit payment method, and the bank issued a guarantee. As long as the seller delivered the goods according to the contract, the buyer could get the payment, and the buyer did not need to fulfill the contractual delivery obligation before the seller fulfilled the contract. payment. A letter of credit is a conditional bank guarantee. It is the bank (issuing bank) that, at the request and direction of the buyer (applicant), guarantees that the seller (beneficiary) will pay a sum of money immediately or in the future. The seller (beneficiary) is required to submit the money to the bank (the negotiating bank) to submit the documents specified in the letter of credit. For example: documents for commercial, transportation, insurance, government and other purposes.

Analysis:

1. Applicant for the issuance (buyer): The person who requests the bank to open a letter of credit.

2. Issuing bank: A bank in the importing country that opens a letter of credit at the request of the buyer.

3. The advising bank: a bank in the exporting country that informs the exporter of the issuance of the certificate.

4. The drawer (seller): sells the goods and issues a draft to the issuing bank or the buyer.

5. The drawee (seller): The person responsible for the payment when the draft is due.

6. Negotiating bank: paying or accepting a bill of exchange to the seller

7. Reimbursing bank: Usually the issuing bank itself, he reimbursed the negotiating bank for the advance payment of the latter. On some occasions, it may be the reimbursement agency of the issuing bank in a third country.

8. Beneficiary: Opening a letter of credit with this person, that is, the right to issue a draft and collect the money.

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