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Letters of Credit

Key Stages


Incoterms 2000

Credit Insurance
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Letters Of Credit Funding
Key Stages

Image : Diagram of the Documentary Letters of Credit Trade Process

The Documentary Letters of Credit (LC) Process

1. Importer & Exporter negotiate terms of the contract
2. Importer instructs their bank, the Issuing Bank, to open a LC in favour of the Exporter
3. Importer's Bank, the Issuing Bank, issue the LC to the Exporter's Bank, the Advising Bank
4. LC is received by Advising Bank which checks the LC, then passes it on to the Exporter
5. Goods are shipped
6. Shipping documents are prepared and submitted to the Advising Bank by the Exporter
7. Advising Bank checks the documents. If they comply with LC they send the documents to Issuing Bank and may pay the Beneficiary/ Exporter in advance of being reimbursed by the Issuing Bank
8. Issuing Bank checks documents again, if correct they are released to Importer and the Importer's account is debited
9. Issuing Bank reimburses Advising Bank
10. Payment sent to Beneficiary/Exporter if this didn't occur in stage seven


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