Negotiation L/C

Negotiation L/C is a commonly used letter of credit in international trade, referring to a letter of credit in which the issuing bank authorizes a certain bank (the negotiating bank) to purchase the draft and/or documents submitted by the beneficiary that comply with the terms of the letter of credit, thereby providing financing to the beneficiary. The negotiating bank is usually a bank in the exporting country, and after negotiation it becomes a holder in due course of the draft and has the right to claim payment from the issuing bank. It is mostly used when the exporter wishes to obtain funds for working capital in advance and the issuing bank has good credit standing. Points to note: A negotiation L/C must clearly specify the negotiating bank and whether negotiation is restricted; the beneficiary must submit complying documents, otherwise the negotiating bank may refuse payment; the negotiating bank has recourse against the beneficiary (unless the L/C states that it is without recourse). Difference from a sight payment L/C: under a negotiation L/C, the negotiating bank advances funds first and then seeks reimbursement from the issuing bank, so there is recourse risk; while under a sight payment L/C, the issuing bank pays directly, with no recourse. Difference from an acceptance L/C: under an acceptance L/C, the beneficiary must wait until the draft matures to receive payment, whereas under a negotiation L/C, financing can be obtained in advance.