The process described below is for a sight letter of credit, with negotiation of documents by the Advising bank. Here are the first three steps.
Buyer and seller agree terms, including means of transport, period of credit offered (if any), latest date of shipment, Incoterms rule to be used.
Buyer applies to bank for issue of letter of credit. Bank will evaluate buyer’s credit standing, and may require cash cover and/or reduction of other lending limits.
Issuing bank issues LC, sending it to Advising bank – usually by electronic means, though air mail can be used.
