It is significantly different than other payment options in international trade, mainly because of the fact that letter of credit is governed by banks.
As a result it is a vital importance to understand banks, their roles and responsibilities in order to act correctly under a letter of credit transaction.
Advising Bank is the bank that advises the letter of credit to the beneficiary.
Issuing bank, on the other hand, is the bank that issues a letter of credit at the request of an applicant or on its own behalf.
After making the definitions, we can now proceed to understand the key differences between advising banks and issuing banks.
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| Differences Between Advising Bank and Issuing Bank |
- Issuing banks draft and issue letters of credit. Advising banks only transmit already issued letters of credit to beneficiaries.
- Issuing banks select all banks and determines their roles in letters of credit. Advising banks, on the other hand, can only choose whether act as an advising bank to transmit the letter of credit to the beneficiary, or else elect not to act as an advising bank and inform issuing bank so, as soon as possible.
What are the differences between issuing banks and advising banks in terms of their responsibilities in letters of credit?
Payment Responsibility:
- Issuing banks are irrevocably bound to honour complying presentations. Which means that issuing banks must pay letters of credit amounts to beneficiaries or other banks against complying presentations. For example, an issuing bank must reimburse the confirming bank, which has honoured a complying presentation.
- Advising banks have no payment responsibilities. Current letters of credit rules signifies this situation by saying "an advising bank that is not a confirming bank advises the credit and any amendment without any undertaking to honour or negotiate".
Document Checking Responsibility:
- Issuing banks must check documents in order to determine whether or not presentations are complying.
- Advising banks are not obligated to check documents. Even if they do check documents, they do it against a fee and without assuming any responsibilities on their sides.
