Agreement between Seller and Importer
This step is quite important because all the terms of the contract will be settled among the exporter and importer. Like, what’s the time of delivery of goods, payment terms, transport and shipping conditions will be mentioned in this contract.
Request to open a LC
An importer will request his bank to open a letter of credit. An importer will complete an application form to open LC. It’s important to note here that the bank is not bound to trade contract between importer and exporter; the bank will only follow the terms and conditions which are explained in the application form.
Issuance of LC
The Issuing bank will open LC through the SWIFT network. Otherwise, it can be done by encrypted telex or by mailing a standardized form issued by the international Chamber of Commerce. Once LC is issued, the issuing bank will be liable to pay the beneficiary once all terms of the contract are fully met.
Through the SWIFT network, the correspondent bank will get notification of LC. Then the bank will notify the exporter about the opening of LC. The advising will also add its confirmation or not, confirmation is a process for verifying terms of trade.