There are 4 primary actors in a Letter of Credit transaction: the importer, the exporter, the issuing bank (acting on behalf of the importer), and the advising bank (acting on behalf of the exporter). For a case example, click here...
The importer and exporter agree on the amount, price, method of payment and all other contract details for the goods.
The importer applies to their bank for a documentary credit in favour of the exporter.
The bank prepares the documentary credit and forwards it to the exporter (beneficiary) through an advising bank in the exporter's country.
The advising bank forwards the credit to the exporter.
The exporter prepares the shipment and documentation. The goods are delivered to the shipping company.
The original documentary credit, draft and documents are presented to the negotiating or paying bank.
Draft and documents are sent to the issuing bank.
The issuing bank examines the documents for compliance with credit terms. Drawing is paid or accepted as appropriate.
Documents are delivered to the importer.
The importer obtains the goods from the shipping company, or clears them through Customs.
