International Payments

How do the banks involved in an advised letter of credit transaction function?

The bank that issues an advised letter of credit (the issuing bank) assumes the role of the foreign buyer, whereas the bank that conveys the letter of credit to the seller (advising bank) assumes no role other than conveying the letter of credit to the beneficiary. By functioning in this manner, the issuing bank effectively eliminates the payment risk associated with the foreign buyer. Since the advising bank assumes no role other than conveying the letter of credit terms to the beneficiary, however, the payment risk associated with the issuing bank remains the payment risk with which the seller/exporter must contend.

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