What are the Parties to Letter of Credit?

Several parties are involved in Letter of credit. We can classify Seven (7) types of LC Parties:


Applicant is the person who request to bank to open a letter of credit. Commonly, importer is the applicant who open the letter of credit. Letter of Credit is opened opened as per the instruction of importer, and to open a letter of credit necessary payment to be made to the bank. The payments includes LC Margin, Opening commission, swift charges etc. LC Margin is a security deposits and refunded to the importer after full LC payment is made. Usually, importer requests to his bank to open a letter of credit as per the term and conditions as mentioned in the Proforma Invoice and as per agreement between buyer and seller.


Beneficiary are the exporter or seller of goods who are entitled to receive export proceeds. Letter of credit are issued in favor of beneficiaries. Beneficiaries are entitled to receive payment under both commercial and standby letter of credit. They send required documents after goods shipped through its bank for collection export proceeds as per the term and condition as mentioned in letter of credit.

 Issuing Bank:

Issuing Bank open letter of credit at the request of applicant or importer and takes the responsibility to pay amount on receipt of documents from supplier of goods. This bank undertakes to honor a complying presentation of the beneficiary without recourse. The credit of issuing bank replaces the credit of buyers.

Risk to issuing Bank:

  • Buyer may be insolvent before making the payment.
  • Fraud Risk, Sovereign, Regulatory and Legal Risks.

Nominated Bank:

Nominated Bank is the bank with which the credit is available or any bank in the case of a credit available with any bank.

Risks to the Nominated Bank:

Nominated Bank make payment to the beneficiary against documents that comply with the terms and conditions of the Credit but may not obtain reimbursement from the issuing Bank.

  Advising Bank

Advising bank is the consulting bank that may assure to exporter about the authenticity of letter of credit. Advising Bank is the Correspondent bank of an issuing bank (importer’s bank) that receives a Letter of credit from the issuing bank to verify its authenticity and to inform or advise to the exporter that the Letter of credit is opened in favor of him (Exporter) is trustworthy.

Confirming Bank

Exporter’s Country bank which will assure you that the letter of credit opened by the importer will be honored if the conditions mentioned in the agreement of LC are fully complied with.The confirming bank undertakes this responsibility on an arrangement (called confirmation) with the importer’s bank i.e issuing bank for the payment or negotiation acceptance under the credit.

Negotiating Bank

Negotiating Bank negotiates documents which is delivered by exporter to his bank. We may say, Negotiating bank is the bank that receives and examines the seller’s documents for adherence to the terms and conditions of the letter of credit. After verifying the documents, send it to the issuing bank (importer’s bank) for the payment. Issuing bank verifies the provided documents and confirms the terms and conditions under LC on behalf of exporter to mitigate discrepancies.

Reimbursing Bank

Reimbursing bank is the bank which is mentioned in the letter of credit. The Issuing bank is often considered as reimbursement bank, but not always issuing bank is reimbursement bank. If issuing bank is not acting as reimbursement bank, it will not be liable to pay for LC payment, unless it has confirmed the reimbursement instruction. Th issuing bank is not released from its commitment to pay through the nomination of reimbursement bank.