Definition
The term advising bank refers to a financial institution that plays an intermediary role between a beneficiary and a bank issuing a letter of credit for an applicant. Advising banks are typically used to avoid cases of fraud when an importer and export enter into an agreement for goods or services.
Explanation
When an importer, or buyer / applicant, enters into an agreement with an exporter, or seller / beneficiary, an advising bank is frequently used to authenticate the letter of credit provided by the importer. Also known as a notifying bank, the advising bank is not the institution issuing the letter of credit; rather the advising bank is playing an intermediary role in the transaction. Advising banks are used by exporters to avoid cases of fraud.
The advising bank is typically located in the same country as the beneficiary / exporter. Oftentimes it is a local branch of the overseas bank issuing the letter of credit. The exporter may also choose a bank with which it regularly conducts business and trusts to act in this advising role. This second option is favorable to the beneficiary, since it's more convenient to deal with a bank that also maintains their account.
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