The typical process of payment under L/C is shown below【悟空海运】
Firstly, after a sales contract has been negotiated and letter of credit has been agreed upon as the method of payment, the applicant will contact a bank to ask for a letter of credit to be issued ；
Secondly, once the issuing bank has ascertained that the applicant will be able to pay for the goods it will issue the letter of credit.
Thirdly, once the beneficiary receives the letter of credit it will check the terms to ensure that it matches with the contract, and will either arrange for shipment of the goods or ask for an amendment to the letter of credit so that it meets with the terms of the contract. The letter of credit is limited by time, in terms of the validity of the credit, the latest date of shipment, and in terms of how long after shipment the documents may be presented to the Nominated Bank.
Fourthly, once the goods have been shipped, the beneficiary will present the set of requested documents to the nominated bank.
Fifthly, this bank will check the documents, and if they comply with the terms of the letter of credit the issuing bank is bound to honour the terms of the letter of credit by paying the beneficiary. If the documents do not comply with the terms of the letter of credit they are considered discrepant. At this point the nominated bank will inform the beneficiary of the discrepancy and offer a number of options depending on the circumstances. If the discrepancies are minor it may be possible to present corrected documents to the bank to make the presentation compliant. Documents presented after the time limits mentioned in the credit are also considered discrepant.
Sixthly, the negotiating bank will ask for reimbursement upon providing the bill of exchange and shipping documents to the issuing bank or any nominated bank.
Seventhly, the issuing bank will pay to the negotiating bank after checking such documents. Eighthly, the issuing bank will inform of the applicant of the payment against the documents.
The typical process of payment under L/C is shown below【悟空海运】
