What is the payment process of letter of credit? What are the characteristics of letter of credit payment?

Letter of Credit (L/C) is a written document issued by a bank (issuing bank) to make payment to a third party (beneficiary) or its designated party based on the requirements and instructions of the applicant or on its own initiative, subject to the terms of the letter of credit, with the prescribed documents. That is, a letter of credit is a written document issued by a bank that promises to pay conditionally.

The general procedure for payment by letter of credit is:

(1) The import and export parties should clearly stipulate in the sales contract that payment shall be made by letter of credit.

(2) The importer applies to the bank in his/her location for a letter of credit, fills out an application form, and pays a certain deposit or provides other guarantees, and asks the bank (issuing bank) to issue a letter of credit to the exporter.

(3) The issuing bank opens a letter of credit in favor of the exporter in accordance with the contents of the application and notifies the exporter of the letter of credit through its agent bank or correspondent bank (collectively referred to as the notifying bank) in the exporter's location.

(4) After the exporter ships the goods and obtains the shipping documents required by the letter of credit, he shall negotiate the payment of the goods with his bank in the country (which can be the notifying bank or other banks) in accordance with the provisions of the letter of credit.

(5) After the negotiating bank has negotiated the payment for the goods, it shall indicate the negotiation amount on the reverse of the letter of credit.

The letter of credit has three characteristics:

First, the letter of credit is a self-sufficient instrument. The letter of credit is not attached to the sales contract. When reviewing the documents, the bank emphasizes the written certification that the letter of credit is separate from the underlying trade.

Second, the letter of credit is a pure documentary transaction. The letter of credit is paid based on the documents, not the goods. As long as the documents are consistent, the issuing bank should pay unconditionally;

Third, the issuing bank bears the primary liabilities for payment. A letter of credit is a bank credit, a bank guarantee document, and the issuing bank has the primary liabilities for payment.

This is the end of the knowledge about the letter of credit payment process in this issue. If you want to get more information about the letter of credit payment process, please pay attention and we will continue to answer you~