What is an import letter of credit？
A letter of credit (LC) is a written document submitted by the importer's bank on behalf of the importer。By using a letter of credit, an exporter ensures that the issuing bank will pay the exporter in international trade。The importer shall be the applicant and the exporter shall be the beneficiary。The issuing bank guarantees payment of the credit for the above amount on the agreed schedule and specified documents。
Credit business process
The whole process of LC consists of four main steps:
Step 1 - Open a letter of credit
After both parties have reached an agreement on the contract and the use of the letter of credit, the importer applies to the issuing bank for the issuance of the letter of credit。The credit is sent by the issuing bank to the advising bank。This often happens in the country where the exporter is located, or even in the exporter's bank。Inform the confirming bank to verify the authenticity of the L/C and forward it to the exporter。
The second step is to transport goods
Upon receipt of the L/C, the exporter is expected to verify it to his satisfaction and begin the process of shipping the goods。
Step 3 - Provide documents to the confirming bank
After shipment of the goods, the exporter submits the documents to the recommended/confirming bank either individually or through the freight forwarder。
Step 4 - Settle the importer's payment and title to the goods
The bank then sends them to the issuing bank to be paid if the amount is received or negotiated。The issuing bank verifies the documents and receives payment from the importer。The company sends documents to the importer, which it uses to take ownership of the shipped goods。