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Who normally asks a bank to issue an LC or standby?
Who is Who in Banking?
Simple concepts first. Proper banking terminology second.
Applicant and beneficiary
The applicant is the party that asks a bank to issue an undertaking. The beneficiary is the party in whose favour the undertaking is issued.
Payer and payee
Payer means the party making payment. Payee means the party receiving payment. These simple words are useful when an instrument has more specialised names for the parties.
Drawer and drawee
A drawer creates a draft or bill of exchange ordering another party to pay. The drawee is the party ordered to pay. If the drawee accepts a time draft, the acceptance can create an important payment obligation.
Issuing, advising and confirming banks
The issuing bank gives the primary undertaking under an LC or standby. An advising bank passes an authenticated instrument to the beneficiary. A confirming bank adds its own undertaking when confirmation is properly added.
Nominated and reimbursing banks
A nominated bank is a bank with which a documentary credit is available. A reimbursing bank may be authorised to reimburse another bank according to the transaction structure. Not every transaction uses every bank role.
Remember thisAlways identify the party first. Many banking mistakes happen because people use the right word for the wrong party.
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