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letter of credit

Jun 06, 2018

The general procedure for payment by l/c is : 

(1) the parties to the import and export shall specify the payment by l/c in the contract of sale and purchase. 

(2) the importer to apply for the issuing bank its seat, fill out an application form the issuing and open the l/c and pay a certain amount of deposit or provide other guarantee, the bank (issuing bank), please open the l/c to the exporter. 

(3) the issuing bank according to the content of the application for open the l/c in export factitious beneficiary beneficiary, and through its correspondent bank or correspondent bank in the alteration is located (generally referred to as the advising bank) to letters of credit advising the alteration. 

(4) the alteration in the goods dispatched, by shipping documents required by l/c, as stipulated in the l/c to the local line (can be the advising bank, also can be other Banks) negotiation of the payment for goods. 

(5) the amount of negotiation shall be indicated on the back of the letter of credit immediately after negotiation.

The letter of credit has three features: 

1)The credit is a self-sufficient instrument.The letter of credit is not attached to the contract of sale and purchase. In reviewing the documents, the bank emphasizes the certification of written form separating the letter of credit from the basic trade.

2)The letter of credit is pure documentary transaction.A letter of credit is payable against documents, not against goods.The issuing bank shall make unconditional payment as long as the documents are in conformity.

3)The issuing bank shall be responsible for primary liabilities for payment.A letter of credit is a kind of bank credit. It is a kind of guarantee document of the bank.