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. Applying for a letter of credit After the importer and exporter agree to pay by documentary letter of credit, the importer has the responsibility to open a letter of credit ... The first thing to do 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 The requirements for applying for a letter of credit are clearly stipulated in the Uniform Customs, and the importer must accurately inform the bank. 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. Safety of Opening a Letter of Credit After receiving the complete instructions from the applicant, the bank must immediately open a 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 frozen funds in the deposit or 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 Letter of credit can be transmitted by air, 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. Instructions for Effective 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 regarded as a valid letter of credit document or an effective amendment, and it is not necessary to send an email for confirmation.