The process of advising a documentary credit (also known as a letter of credit) is a key step in international trade finance. It ensures that the beneficiary (usually the exporter) receives a verified and authenticated credit issued by the buyer’s bank. Here's a breakdown of the advising process:

1. Issuance of the Documentary Credit

• The issuing bank (on behalf of the buyer/applicant) creates the documentary credit and sends it to the advising bank.
• This is typically done via secure channels like SWIFT MT700 for new LC and SWIFT MT 707 for LC Amendments.

2. Receipt and Authentication by Advising Bank

• The advising bank receives the credit/amendments and checks its apparent authenticity.
• It does not verify the terms and conditions for workability unless it chooses to do so as a policy.
• The bank ensures the credit is genuine and reflects the terms received from the issuing bank.

3. Advising to the Beneficiary

• The advising bank notifies the beneficiary (exporter) of the documentary credit and its amendments.
• This is usually done by forwarding a copy of the credit (e.g., SWIFT MT700, MT 707) along with a covering advice.
• The beneficiary is now aware of the credit and can begin preparing for shipment and documentation.

4. Optional Confirmation

• If requested, the advising bank may also act as a confirming bank, adding its own undertaking to pay if the issuing bank fails to do so.
• Confirmation is typically requested when the beneficiary has concerns about:
  • The creditworthiness of the issuing bank
  • Country risk
  • Documentary risk

5. Beneficiary’s Action

• Upon receiving the advised credit, the beneficiary:
  • Ships the goods as per contract
  • Prepares and submits the required documents to the nominated bank (which may be the advising bank)

6. Document Examination and Payment

• If the advising bank is also the nominated bank, it may examine the documents and forward them to the issuing bank.
• Upon compliance, payment is made either by the advising/nominated bank or the issuing bank.

Key Points:

• Advising bank does not guarantee payment unless it confirms the credit.
• The process is governed by UCP 600 (Uniform Customs and Practice for Documentary Credits).
• Advising ensures the beneficiary receives a secure and authenticated credit.