Letter Of Credit Transaction- Secure Export Payment
When all the terms are agreed upon the transaction can began
The exporter, upon receiving an order for a specified quantity of goods, sends the buyer (importer) a pro forma invoice defining all conditions of the transaction.
The importer takes the pro forma invoice to the bank and applies for an LC.
After verifying the terms and reaching the appropriate credit decisions, the importer’s bank opens the LC and sends it to the exporter’s bank
The exporter’s bank authenticates the LC, verifying a viable bank issued it, and either
forwards it to the exporter or keeps the original and sends a copy.
The exporter compares the LC with the original pro forma invoice to ensure that agreed upon terms and conditions have been incorporated in the LC and that they can be met.
The exporter prepares, usually with the help of a freight forwarder, an invoice and a packing list. These documents must be completed exactly as specified in the LC. The exporter also prepares a shipper’s letter of instruction or SLI and any other specialized documents required, e.g., export license and certificate of origin. (Check with a freight forwarder to determine what documents are required in your case.)
The freight forwarder receives the goods along with completed paperwork in accordance with the terms of the LC
After the goods are shipped, the forwarder or exporter submits the LC and documents to the exporter’s bank.
The exporter’s bank verifies that all required documents are in compliance with the LC and forwards the documents package with a draft to the importer’s bank with wiring (payment)
instructions.
The importer’s bank reviews all documentation and, if the documents meet all requirements, credits the exporter’s bank.
The importer’s bank simultaneously debits its customer’s account.
The exporter’s bank credits the exporter’s account.
The importer’s bank releases documents to its customer.
With documents in hand, the importer picks up the shipment.