Step 1The initiative to open a Letter of Credit through the Issuing Bank is taken by the Buyer/Importer (‘Applicant’). The Issuing Bank will open the Letter of Credit and send it (often through the swift network) to the Advising/Confirming Bank who will confirm the authenticity of the L/C and advise it to the Seller/Exporter (‘Beneficiary’).
Step 2After thoroughly reading the Letter of Credit, the Beneficiary can ship or, if not satisfied with the terms of the L/C, request an amend of the L/C text.
Step 3After the Beneficiary ships he will send the requested documents (e.g. Invoice, Packing List, Bill of Lading, Certificate or Origin, etc.) to the bank mentioned in the Letter of Credit that is authorized to either pay, accept, or negotiate the documents. This bank will examine the documents and, depending on their role, they will pay, accept, negotiate or send the documents on an approval basis to the Issuing Bank for payment.
Step 4Upon receipt of complying documents or, in the event of discrepancies, waiver of the discrepancies by the issuing bank, payment will be affected to the beneficiary, in accordance with the terms of the Letter of Credit.