Simple L/C Process

1.Buyer and seller agree to terms including means of transport, period of credit offered (if any), and latest date of shipment acceptable.

2.Buyer applies to bank for issue of letter of credit. Bank will evaluate buyer's credit standing, and may require cash cover and/or reduction of other lending limits.

3.Issuing bank issues LC, sending it to the Advising bank by airmail or electronic means such as telex or SWIFT.

4.Advising bank establishes authenticity of the letter of credit using signature books or test codes, then informs seller (beneficiary).

5.Seller should now check that LC matches commercial agreement and that all its terms and conditions can be satisfied.

6.Seller ships the goods, then assembles the documents called for in the LC (invoice, transport document, etc.).

7.The Advising bank checks the documents against the LC. If the documents are compliant, the bank pays the seller and forwards the documents to the Issuing bank.

8.The Issuing bank now checks the documents itself. If they are in order, it reimburses the seller's bank immediately.

9.The Issuing bank debits the buyer and releases the documents (including transport document), so the buyer can claim the goods from the carrier.


Participants in LC Process
______________________________
Buyer
Issuing Bank
Advising Bank
Seller (Beneficiary)

L/C CHECKLIST FOR THE EXPORTER/ Seller

1) Is the Letter of Credit (L/C) irrevocable and issued subject to current International Chamber of Commerce (I.C.C.) rules?

2) Are you satisfied with the bank and country that issued the L/C or do you need it confirmed (guaranteed by a local bank)?

3) Does the expiry date allow sufficient time to present all the requested documentation to the bank indicated?

4) Is the name and address of your company and that of the buyer correct?

5) Is the amount of the credit as agreed? Has the correct tolerance (if any) been applied?

6) Are the payment/credit terms as agreed?

7) Are the goods, their value, unit prices, weight, quantity, quality described correctly?

8) Are all the transport details, such as place and date of shipment, the destination, method of carriage, Incoterm correct?

9) Does the Letter of Credit contain any spelling mistakes?

10) Is the L/C payable/negotiable in XXX Country at the counters of XXX bank?

11) Can the goods be shipped prior to the latest shipment date or in accordance with the shipping schedule outlined in the Letter of Credit?

12) Can the documents required be obtained and produced in the format required by the Letter of Credit?

13) Is transshipment allowed?

14) Is partial shipment allowed, if necessary?

15) Can all the conditions outlined be met?

16) Who pays the various banks’ charges?