Payment Negotiation

Payment Negotiation under a Letter of Credit (L/C) in international trade refers to a payment method where the negotiating bank, authorized by the issuing bank, advances funds to the beneficiary (exporter) upon receipt of documents that comply with the L/C terms, and then forwards the documents to the issuing bank for reimbursement. It is commonly used when the exporter wishes to recover funds early and reduce capital tie-up, provided the issuing bank has good credit standing. Note: The negotiating bank usually retains the right of recourse; if the issuing bank refuses to pay, the negotiating bank can recover the funds from the beneficiary. The beneficiary must present strictly complying documents, otherwise payment or negotiation may be refused. The difference from 'Payment' is that payment is made directly by the issuing bank without recourse; the difference from 'Acceptance' is that acceptance involves payment at maturity after acceptance of a time draft, while negotiation allows early financing for both sight and time drafts. Unlike 'Collection', negotiation is based on bank credit, whereas collection is based on commercial credit.