Instructing Bank – Definition

Cite this article as:"Instructing Bank – Definition," in The Business Professor, updated October 10, 2019, last accessed August 14, 2020, https://thebusinessprofessor.com/lesson/instructing-bank-definition/.

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Instructing Bank Definition

A financial transaction that entails the transfer of funds between two parties require that the presence of two banks. In such a transaction, any of the banks that play the major role of transfer of funds is called an instructing bank.  As the name implies, an instructing bank plays the role of an administrative agent in the transfer of funds between two parties. The instructing bank initiates a fund transfer as instructed by the customer and also receives instructions on who to receive the funds and amount to be sent.

A Little More on What is an Instructing Bank

An instructing bank initiates that transfer of funds from a customer to a receiver after it has received instructions from the client. This bank receives instructions from the client as to who the receiving party is and the amount of funds to be transferred. An instructing bank is different from an advising bank in the transfer of funds between two parties. An advising bank notifies a receiver that funds have been received while the instructing takes an active role in ensuring that the fund is transferred to the receiving party. An instructing bank is otherwise called ‘the ordering party’ while an advising bank is called ‘the notifying bank.’

Instructing Bank and Wire Transfer

The importance of an instructing bank is beyond the ordinary transfer of funds, this bank is also important in wire transfer. Generally, there are many banks that play administrative roles in wire transfers. In wire transfers, there is no need for a physical transfer or exchange of money, rather, the transfer of funds is done electronically.

Information needed in a wire transfer are information about the recipient or receiver of the funds such as the bank account, bank name, the amount to be transferred. Once a client supplies these important information, the concerned banks settle all payments between themselves using the back end.

In some wire transfers, especially ones that entail overseas payments, an international bank account number (IBAN) is needed for every transaction. This is in addition to the traditional bank account number of the receiver. IBAN is used to indicate the specific country the payment was made to. The first two digits of an IBAN number symbolises the country, it is a two-letter code showing the receiving country.

References for “Instructing Bank”

https://www.investopedia.com/terms/i/instructing-bank.asp

www.investorwords.com/18259/instructing_bank.html

https://www.allbusiness.com/barrons…/dictionary-instructing-bank-4944418-1.html

https://www.proz.com/kudoz/…/4910999-instructed-agent-vs-instructing-agent.html

https://www.helpwithmybank.gov/dictionary/index-dictionary.html

 

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