The following figure shows the detailed process of domestic letter of credit:

The first step is to issue the letter of credit.

1. Application for issuance of certificate. When an applicant for a letter of credit uses a letter of credit, he or she shall entrust the bank with which the applicant has an account to handle the issuance of the letter of credit. When applying for L/C issuance business, the L/C applicant shall fill in the L/C issuance application form, L/C applicant letter of commitment and submit relevant purchase and sale contracts.

2. Accept the issuance of certificate. The issuing bank decides whether to accept the issuance business based on the application for issuance, the letter of commitment from the L/C applicant and the purchase and sale contract submitted by the applicant. When the issuing bank decides to accept the business, it shall charge a deposit of no less than 20% of the issuance amount from the applicant, and may require the applicant to provide a mortgage, pledge, or issue a letter of guarantee from other financial institutions based on the applicant's credit status.

The second step is notification.

When the advising bank receives a letter of credit, it should carefully review it. If the verification is correct, a letter of credit notification should be filled out and delivered to the beneficiary together with the letter of credit.

The third step is negotiation.

1. The negotiating bank must be the beneficiary’s account bank designated by the issuing bank. Negotiation is limited to deferred payment letters of credit. The beneficiary can present the documents, the original letter of credit and the letter of credit advice to the negotiating bank during the document presentation period or the validity period of the letter of credit, and fill out the letter of credit negotiation/entrusted collection application form and negotiation voucher to request negotiation.

2. After the negotiating bank reviews the documents presented by the beneficiary and agrees to negotiate, the negotiation will be processed. The actual negotiated amount is calculated based on the negotiated amount minus the interest from the negotiation date to the day before the payment expiration date of the L/C, and the negotiation interest rate is compared to the discount interest rate. If negotiation is refused, a written notice of negotiation shall be made in a timely manner, indicating the reasons for refusal of negotiation and notifying the beneficiary. The negotiating bank may not negotiate according to the beneficiary's request, but only handle entrusted collection for the beneficiary.

3. After negotiation, the negotiating bank should send the documents to the issuing bank through entrusted collection to claim funds. After the negotiating bank negotiates the letter of credit, it has recourse to the beneficiary. If payment is not received when due, the negotiating bank may collect the negotiated amount from the beneficiary's account.

The fourth step is payment.

1. When the beneficiary presents documents to the issuing bank for payment during the document presentation period or the validity period of the letter of credit, he should fill in the entrusted collection voucher and letter of credit negotiation/entrusted collection application form to the bank where the account is opened. And issue the original documents and letter of credit. After the bank where the account is opened has received the voucher and reviewed all the documents, it should handle the presentation and collection of payment to the issuing bank in a timely manner.

2. The issuing bank receives the entrusted collection voucher, letter of credit document and shipping notice from the negotiating bank or the entrusted collection voucher and original letter of credit sent by the beneficiary's account bank. Within 5 business days from the day after the receipt of the documents and L/C negotiation/entrusted collection application, promptly check whether the surface of the documents is consistent with the terms of the L/C. After there is no error, for the sight payment letter of credit, the money will be collected from the applicant's account and paid to the beneficiary.

3. For a deferred payment letter of credit, a maturity payment confirmation should be issued to the negotiating bank or beneficiary, and the payment should be collected from the applicant's account on the maturity date and paid to the negotiating bank or beneficiary.

4. If the deposit deposited by the applicant and the balance in his deposit account are insufficient for payment, the issuing bank shall still make payment within the specified time. The portion that is insufficient to pay will be treated as an overdue loan.

5. If the applicant is provided with a mortgage, pledge, letter of guarantee or other guarantee, claims shall be made in accordance with the relevant provisions of the "Guarantee Law of the People's Republic of China".

Extended information

The basic terms of the letter of credit include:

(1) Name and address of the issuing bank;

(2) Date of issuance;

(3) Letter of credit number;

(4) Irrevocable and non-transferable letter of credit;

(5) Name and address of the applicant for the issuance of the letter;

(6) Name and address of the beneficiary (the beneficiary is the person who has the right to receive the payment of the letter of credit, usually the supplier of the purchase and sale contract);

(7) Name of the advising bank (the beneficiary of the notification act) The issuing bank entrusts the bank to notify the beneficiary of the letter of credit);

(8) The validity period and location of the letter of credit (the validity period of the letter of credit is the latest period for the beneficiary to submit documents to the bank, and the longest period shall not exceed 6 months;

(9) The valid location of the letter of credit is the document submission location specified in the letter of credit, that is, the location of the negotiating bank or the issuing bank);

(10) Delivery Single period (the document presentation period is the specific date on which the documents must be presented after shipment of the goods specified in the letter of credit submitting the transport documents);

(11) Amount of the letter of credit;

( 12) Payment method (sight payment, deferred payment or negotiation);

(13) Transportation terms; description of goods (including name of goods, quantity, price, etc.);

( 14) Document terms (must indicate the documents used for payment or negotiation, including at least invoices, transport documents or cargo receipts);

(15) Other terms;

(16 ) The issuing bank’s guarantee text.

Baidu Encyclopedia--Domestic Letter of Credit