What is negotiation of letter of credit?

Negotiation of a letter of credit refers to the process by which a bank or financial institution (the negotiating bank) examines the documents presented by the seller (beneficiary) to ensure they comply with the terms of the letter of credit. If the documents are in order, the negotiating bank pays the seller or agrees to pay at a future date. This process helps facilitate international trade by providing security to the seller while ensuring that the buyer's payment is contingent upon the fulfillment of agreed terms. The negotiating bank typically charges a fee for this service.