1) Review
After receiving the importer’s letter of credit application, the bank will first review the following: ① Review whether the credit of the applicant is a customer of the bank, whether there is a credit line, etc., so as to determine the risk of the letter of credit and determine the proportion of the deposit to be collected; ② Review whether the import transaction complies with the state’s regulations on foreign trade and foreign exchange control, and whether a valid import license, foreign exchange quota approval document and other documents have been obtained; ③ Review the content of the letter of credit application, which is the most important review item, mainly reviewing whether the letter of credit instruction is complete, clear and concise, whether it contains non-documentary terms, and whether the content is self-contradictory.
2) The applicant pays the handling fee and provides the letter of credit deposit
If the review is passed, the bank will require the applicant to pay the handling fee and provide the letter of credit deposit. Whether to collect and how much deposit to collect depends not only on the customer’s credit status and business performance, but also on the customary practices of the issuing bank and the regulations of the relevant authorities. Generally speaking, applicants with good credit or with a credit line from the issuing bank can be exempted from or pay less deposit, otherwise they have to pay more until the deposit of the letter of credit amount is paid. The deposit can be paid in cash, or the issuing bank can freeze the corresponding funds in the applicant’s account. If the applicant is also the beneficiary of another letter of credit, he can request to use the rights and interests under the export letter of credit instead of the deposit. If the bank is sure of the collection of exchange under the export letter of credit, and the amount exceeds the amount of the letter of credit for import, it can also accept the applicant’s request to use the original export letter of credit as collateral. In addition, if the applicant provides a valid letter of guarantee from other banks to guarantee that it will assume all obligations and responsibilities arising from the issuance of the letter of credit, the issuing bank can also be exempted from the requirement to collect the deposit, because the purpose of collecting the deposit is nothing more than to reduce the bank’s risk and urge the applicant to fulfill the obligations of the letter of credit.
3) The bank will formally issue the letter of credit according to the provisions of the letter of credit application
Finally, the bank will formally issue the letter of credit according to the provisions of the letter of credit application. If the letter of credit is adopted, one original and several copies are usually prepared, of which one original and one copy are sent to the notifying bank for forwarding to the beneficiary, and the issuing bank and the applicant each obtain a copy for archiving. If the letter of credit is opened by telegram, telex or SWIFT system, it should be noted that the letter of credit opened by telegram, telex or SWIFT system can always be accepted by all parties, but if it is opened by fax, it may be rejected by other parties because fax is not very safe and lacks legal basis and effect.