The payment for goods is settled by letter of credit, from the importer applying to the bank for a letter of credit, to the issuing bank collecting the advance from the importer after payment, which involves many links and various procedures. Due to the different types of letters of credit, the terms of the letter of credit have different provisions, and these links and procedures are also simple or complicated. The basic payment and collection procedures are as follows:
1. The importer and exporter stipulate in the sales contract that payment should be made by letter of credit.
2. The importer applies to the local bank, fills in the letter of credit application form, fills in various regulations and requirements in accordance with the contract, and pays a deposit or provides other guarantees, and asks the bank (issuing bank) to issue the letter of credit.
3. The issuing bank issues a letter of credit to the exporter (beneficiary) based on the content of the application, and sends it to the branch or agent bank (collectively referred to as the notifying bank) where the exporter is located.
4. After verifying that the seal is correct, the notifying bank hands over the letter of credit to the exporter.
5. After the exporter verifies that the letter of credit is consistent with the contract, the exporter shall ship the goods according to the letter of credit, prepare all shipping documents, issue a bill of exchange, and submit it to the local bank (negotiating bank) for negotiation within the validity period of the letter of credit. After the negotiating bank verifies the documents according to the terms of the letter of credit and finds that they are correct, it deducts interest according to the amount of the bill of exchange and advances the payment to the exporter.
6. The negotiating bank sends the bill of exchange and shipping documents to the issuing bank (or its designated paying bank) for compensation.
7. After the issuing bank (or its designated paying bank) verifies that the documents are correct, it pays the negotiating bank.
8. The issuing bank notifies the importer to pay for the bill of exchange.