What difference between LC by negotiation and LC by payment?

Answer 1

Without going into too much detail, Negotiation is the act of the Nominated bank in effecting payment to the beneficiary (in advance of its own receipt of funds from the issuing bank) of the value of the presentation, less an amount of deduction by reason of the time element between the early payment date and the expected date of receipt of funds from the issuing bank. An LC available by negotiation should not allow for immediate reimbursement (e.g authority to debit issuing bank's account, or claiming reimbursement from third party), and would require the nominated negotiating bank to first pay (or commit to pay at a future date) from its own funds and receive reimbursement only after the issuing bank has received the documents and have found them to be in order. In the event that it has commited to pay at a future date, to constitute an act of negotiation, such date must be earlier than the expected date of reimbursement from the issuing bank

On the other hand, under an LC available by Payment, the nominated bank does not advance its own funds, but pays only after it is in a position to either debit the issuing bank's account in its books, or has received reimbursement by claiming on a nominated reimbursing bank.