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What Is Advice of Credit?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 18 November 2016
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    2003-2016
    Conjecture Corporation
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An advice of credit is a type of financial document used to affirm the establishment of a letter of credit. The document is often used as a tool in bank communication to inform the party requesting the credit that the application has been approved, and will usually include at least the basic details regarding the extension of the credit. In many nations, the document is considered ample proof of the existence of the credit account with the bank, and may be used to satisfy potential sellers that the account holder does have access to the resources necessary to complete a sale.

The actual content of an advice of credit will depend on a combination of factors. Bank laws and regulations that apply in the country where the bank is located will have some influence in terms of requiring certain details to be confirmed in the document. In addition, the policies and procedures associated with the issuing or correspondent bank may also call for the inclusion of information above and beyond that required by law.

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Typically, an advice of credit will confirm the contact information on file for the account holder, advise the date that access to the credit was established, and also name the amount of credit that is extended. Since a letter of credit often has to do with satisfying a seller that the buyer has resources to pay for an order, it is not unusual for the seller and his or her bank to also be mentioned in the detail of the advice of credit. If there are other circumstances or limitations on the use of the credit, those are sometimes mentioned in the text of the letter. An alternative approach is to reference specific provisions found in the contract governing the issuance of the credit, allowing the account holder to quickly and easily locate the relevant passages in the credit agreement.

An advice of credit is usually issued once a letter of credit has been approved, alerting the applicant that it is now possible to use that letter of credit to make purchases from a provider. For example, an importer who wished to purchase goods from a foreign seller may request a letter of credit from his or her bank to be prepared and sent to the seller’s bank, also known as the advising bank. Once that request is approved, the buyer’s bank issues the advice of credit and also notifies the seller’s bank that the funds are available to complete the transaction, subject to the specific terms related to the purchase.

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