The operation process of documentary credit is briefly described as follows:

1. The seller and the buyer stipulate in the trade contract that payment shall be made by documentary letter of credit.

2. The buyer informs the local bank (issuing bank) to open a letter of credit in favor of the seller.

The issuing bank requires another bank to advise or confirm the letter of credit.

The advising bank informs the seller that the letter of credit has been opened.

The seller will ship the goods after receiving the letter of credit and ensuring that it can fulfill the conditions stipulated in the letter of credit.

6. The seller shall submit the documents to the designated bank. The bank can be the issuing bank, or the paying bank, accepting bank or negotiating bank specified in the letter of credit.

7. The bank examines documents according to the letter of credit. If the documents comply with the provisions of the letter of credit, the bank will pay, accept or negotiate according to the provisions of the letter of credit.

8. A bank other than the issuing bank sends the documents to the issuing bank.

9. After examining the documents, the issuing bank shall pay the bank that has paid, accepted or negotiated the letter of credit in the form agreed in advance.

10. After the buyer pays, the issuing bank will deliver the documents, and then the buyer will pick up the goods with the documents.

open a letter of credit

1. Application for opening a letter of credit

After the importer and exporter agree to pay by documentary letter of credit, the importer has the responsibility to open the letter of credit. The first thing is to fill out the application form for opening a letter of credit. This form establishes the legal relationship between the applicant and the issuing bank. Therefore, the application for opening an L/C is the most important document for opening an L/C..

2. Requirements for opening a letter of credit

Uniform customs has clear requirements for letter of credit application, and importers must accurately inform banks.

The instructions for opening a letter of credit must be complete and clear. The applicant must always remember that the documentary credit transaction is a document transaction, not a goods transaction. Bankers are not businessmen, so applicants can't expect bank staff to fully understand the technical terms in every transaction. Even if he writes all the terms in the sales contract into the letter of credit, if the beneficiary really wants to cheat, it can't be completely protected. This requires banks and applicants to work together and use common sense to avoid listing letters of credit that are cumbersome for all parties. Banks should also discourage the use of letters of credit that have been opened in the past when opening letters of credit.

3. The security of opening a letter of credit

After receiving the complete instructions from the applicant, the bank must immediately open the letter of credit according to the instructions. On the other hand, the bank also has the right to ask the applicant to hand over a certain amount of funds or other forms of property as a guarantee for the bank to carry out its instructions.

According to the current regulations, foreign exchange owned by local authorities, departments and enterprises in China must usually be deposited in banks in China. If some companies need to import goods or technology by documentary letter of credit, banks in China will freeze the funds equivalent to the amount of the letter of credit in their accounts as the deposit for opening the letter of credit.

If the applicant does not have an account number in the issuing bank, the issuing bank is likely to require the applicant to deposit a sum equivalent to the total amount of the letter of credit in his bank before opening the letter of credit. This guarantee can be realized by mortgage or pawn (such as stocks), but it is also possible for banks to provide financing by using goods used for trading as collateral. The issuing bank must first investigate the marketability of the goods. If the goods sell well, the amount of financing provided by banks to customers through letters of credit is much higher than that of unsalable goods.

4. Obligations and responsibilities of the applicant and the issuing bank

The applicant has three main obligations to the issuing bank:

(1) The applicant must repay the loan paid by the issuing bank to the beneficiary for obtaining the documents. Before he pays, the document as the title certificate still belongs to the bank.

(2) If the documents are consistent with the terms of the letter of credit, and the applicant refuses to "exchange the bill", the deposit or frozen funds in the secured account shall be owned by the bank.

(3) It is the responsibility of the applicant to provide the issuing bank with all the expenses required for opening the letter of credit.

The responsibility of the issuing bank to the applicant:

First of all, it is the responsibility of the issuing bank to open the letter of credit as soon as possible after receiving detailed instructions.

Secondly, once the issuing bank accepts the application for opening a letter of credit, it must act in strict accordance with the instructions of the applicant.

Letter of credit advice

1. Responsibility of advising bank

In most cases, the letter of credit is not directly notified to the beneficiary by the issuing bank, but forwarded through its correspondent bank in the country or region where the beneficiary is located, that is, the advising bank.

The biggest advantage of advising the beneficiary by the advising bank is safety. It is the responsibility of the advising bank to check the apparent authenticity of the letter of credit it advises with reasonable care.

2. Mode of transmission of letter of credit

Letters of credit can be sent by airmail, telegram or telex. SWIFT, headquartered in Brussels, uses leased lines to transmit information between banks in many countries. Most banks, including those in China, have joined this organization.

3. Description of valid letter of credit

When the issuing bank instructs the advising bank to notify the letter of credit or the amendment of the letter of credit by any effective telecommunication transmission method, the telegram will be considered as a valid letter of credit document or an effective amendment, and no email confirmation is required.

Beneficiary inspection

Upon receipt of the letter of credit, the beneficiary shall immediately carry out the following inspections:

1. Are the names and addresses of the companies of the buyer and the seller exactly the same as those printed on the invoice?

2. Does the payment guarantee mentioned in the letter of credit meet the requirements of the beneficiary?

3. Is the amount in the letter of credit correct? The total amount of the letter of credit shall be consistent with the contract, including all the fees payable under the contract.

4. Do the payment terms meet the requirements? Exporters usually demand immediate payment unless they are targeting certain countries or certain importers. Under the condition of usance letter of credit, the term of the draft should be the same as that stipulated in the contract. There is a letter of credit that requires a time draft, but it can be paid at sight. This kind of letter of credit is called "false forward letter of credit" and has the same effect as sight letter of credit for the beneficiary.

5. Do the trade terms mentioned in the letter of credit meet the original requirements of the beneficiary?

6. Can the shipping documents be delivered to the bank within the validity period and time limit?

7. Can you provide the required shipping documents?

8. Are the insurance clauses consistent with those in the sales contract?

-Insurance risk. The beneficiary should contact China People's Insurance Company to decide whether to accept the applicant's request. The expenses beyond the insurance scope stipulated in the sales contract shall be borne by the insured.

-Insurance amount. Most letters of credit require insurance at 1 10% of the CIF invoice value.

9. Is the description of the goods (including free items), quantity and other items written correctly?

If any omissions or errors are found in the inspection conducted according to the above items, the following points shall be determined immediately and necessary measures shall be taken:

-Can you change the contents of plans or documents accordingly to match them?

-Should the buyer be required to amend the letter of credit, and who should pay the amendment fee?

In case of doubt, please consult the contact bank or advising bank of our company. However, please remember that only when the applicant, beneficiary and relevant bank agree with each other can they decide to modify it.

Performance of letter of credit

1. Submit the document

In the documentary credit business, the submission of documents plays a very important role, because it is the key to the final settlement of letters of credit. Whether the beneficiary can get the payment after submitting the documents to the bank depends largely on whether the letter of credit has been opened and whether the documents are ready.

2. Time limit for submission of documents

The time limit for submission of documents is determined by the following three factors:

(1) expiry date of the letter of credit;

(2) Prompt date specified after the date of shipment.

(3) Banks have no obligation to accept and submit documents outside their business hours.

The words "stop", "arrive", "until", "since" and similar words in any date or period related to shipment in the letter of credit can be understood as including the above dates. The word "later" is understood to exclude the stated date.

"The first half month" and "the second half month" should be understood as 1 day to 15 day and 16 day to the last day of the month, including these two days.

"The beginning of the month", "the middle of the month" or "the end of the month" are understood as 1 day to1day,1day to 20, and 2 1 day to the last day of the month, including the first and second days.

3. Restrictions on the place where documents are submitted

Except for free negotiation letters of credit, all letters of credit must specify the place of payment and D/A, or the place of D/A negotiation.

Like the time limit for presentation of documents, the place where the letter of credit expires will also affect the beneficiary's situation. Sometimes, the issuing bank will set the expiration place of the letter of credit in its own country or its own business counter, rather than the beneficiary's country, which is extremely unfavorable to the beneficiary, because he must ensure that the documents are presented in front of the issuing bank's business counter within the validity period of the letter of credit.

Bank audit documents

After the beneficiary submits the documents to the bank, the bank is obliged to carefully examine the documents to ensure that the documents seem to meet the requirements of the letter of credit and the consistency between the documents.

1. Standards for reviewing documents

The bank must check all the documents of the letter of credit with reasonable care to determine whether they are in conformity with the terms of the letter of credit on the surface. The apparent conformity of documents with the terms of the letter of credit should be determined by the international standard banking practices reflected in these terms. Documents that are inconsistent on the surface are deemed to be inconsistent with the terms of the behavior book on the surface.

The above-mentioned "face-to-face" means that the bank does not need to personally ask whether the documents are fake, whether the goods that have been shipped are fake, whether the goods that have been shipped are actually shipped, and whether the documents are invalid after being issued. Unless the bank knows that there is fraud, what actually happened has nothing to do with the bank. Therefore, if the beneficiary's manufacturing is ostensibly related to credit,

False documents that meet the certification requirements can also get the payment. However, if the beneficiary has shipped the stipulated goods in an appropriate way and fails to meet certain conditions stipulated in the letter of credit when making the documents, the bank will refuse to accept the documents, and the payee will never get the payment. The bank will not review the documents not stipulated in the letter of credit. If the bank receives such a document, it will return it to the author or give it to the author without any responsibility.

2. Exempt the validity of documents

The bank is not responsible for the form, completeness, accuracy, authenticity or legal effect of any document, nor for the general and/or special conditions stipulated or attached in the document. The bank is not responsible for the description, quantity, weight, quality, condition, packaging, delivery, quantity or existence of the goods represented by the documents, nor is it responsible for the integrity, behavior and/or negligence, solvency, behavioral ability or credit status of the consignor, carrier, freight forwarder, consignee, cargo insurer and any other person.

3. Time limit for review of documents

How long does it take for the bank to review the documents submitted by the seller and inform the seller whether the documents are complete? Article 13 (b) of the Uniform Customs and Practice clearly stipulates that the issuing bank, the confirming bank (if confirmed) or the nominated bank on their behalf shall each have a reasonable period of time, that is, no more than seven banking days after receiving the documents, to examine the documents, decide whether to accept or reject them, and notify the parties who receive the documents from them.

4. Inconsistent documents and notifications

If the issuing bank authorizes another bank to pay, assumes the responsibility of deferred payment, accepts bills of exchange or negotiates documents that seem to conform to the terms of the letter of credit, the issuing bank and the confirming bank (if confirmed) are obliged to: (1) accept documents; (2) Reimbursement to the designated bank that has paid, assumed the responsibility of deferred payment, accepted bills of exchange or negotiated.

After receiving the documents, the issuing bank and/or the confirming bank (if confirmed) or the designated bank on their behalf must check whether the documents are in conformity with the terms of the letter of credit on the sole basis of the documents. If the documents are inconsistent with the letter of credit, the above-mentioned banks may refuse the documents.

If the issuing bank determines that the documents are not in conformity with the terms of the letter of credit on the surface, it can contact the applicant according to its own decision and ask him to eliminate the discrepancies.

If the issuing bank and/or the confirming bank (if confirmed) or the designated bank on their behalf decide to reject the documents, they must send a notice by telecommunication or other shortcut without delay, and no later than the seventh banking day after receiving the documents. The notice shall be sent to the bank to which the documents are submitted or to the beneficiary if the documents are received directly from the beneficiary.

The notice must explain all discrepancies in the rejected documents, and must also explain whether the bank has retained the documents for processing or has returned them to the presenter. The issuing bank or confirming bank has the right to demand any reimbursement and interest from the sending bank.

If the issuing bank or confirming bank fails to comply with these provisions, or fails to keep the documents for processing, and fails to return the documents to the presenter, the issuing bank or confirming bank has no right to claim that the documents are not in conformity with the terms of the letter of credit. If the issuing bank puts forward any discrepancies in the documents that should be paid attention to to to the issuing bank or the confirming bank, and it has paid by way of reservation or compensation, and assumed the responsibility of delaying payment, the issuing bank or the confirming bank will not be exempted from any obligations when accepting the draft or negotiating.