the bank bears the payment risk in a letter of credit.
who bears the payment risk in a letter of credit?
the bank
bullet::::- "confirmation" is an undertaking from a bank other than the issuing bank to pay the beneficiary for a complying presentation, allowing the beneficiary to further reduce payment risk, although confirmation is usually at an extra cost.









































bullet::::- "confirming bank" is a bank other than the issuing bank that adds its confirmation to credit upon the issuing bank's authorization or request thus providing more security to beneficiary.









































bullet::::- a "complying presentation" is a set of documents that meet with the requirements of the letter of credit and all of the rules relating to letters of credit.









































section::::function.
letter of credit
this points to the major role trade credit insurance plays in facilitating international trade. trade credit is offered by vendors to their customers as an alternative to prepayment or cash on delivery terms, providing time for the customer to generate income from sales to pay for the product or service. this requires the vendor to assume non-payment risk. in a local or domestic situation as well as in an export transaction, the risk increases when laws, customs communications and customer's reputation are not fully understood. in addition to increased risk of non-payment, international trade presents the problem of the time between product shipment and its availability for sale. the account receivable is like a loan and represents capital invested, and often borrowed, by the vendor. but this is not a secure asset until it is paid. if the customer's debt is credit insured the large, risky asset becomes more secure, like an insured building. this asset may then be viewed as collateral by lending institutions and a loan based upon it used to defray the expenses of the transaction and to produce more product. trade credit insurance is, therefore, a trade finance tool.
trade credit insurance