negotiation credit

negotiation credit
A type of letters of credit. Where a seller obtains a negotiation credit, the undertakings of the issuing bank (and the confirming bank if any) are directed to any bank of a description stated in the letter of credit (such a bank is called a negotiating bank). The negotiating bank purchases a bill of exchange drawn by the seller on the nominated bank (or the issuing bank or such other party specified in the credit) at a discount, so that the seller receives payment immediately. On such purchase, the negotiating bank will also obtain from the seller the documents required to be presented under the credit. The negotiating bank can then call on the nominated bank to honour the bill of exchange. In this way, the seller is able to obtain payment immediately from any bank which is a negotiating bank, and the negotiating bank has the undertaking given by the letter of credit available to it.

Practical Law Dictionary. Glossary of UK, US and international legal terms. . 2010.

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