LC’s steps

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Act 1: Instruction to open the documentary credit

The buyer and the seller have agreed to the contract for the sale/purchase of goods or services.
This raises the issue of payment security. If the documentary credit has been chosen by mutual agreement, the buyer gives the opening instructions to his bank, the issuing bank.
Pre-printed forms, typically inspired by the SWIFT coding system, are made available to buyers.

Act 2: Opening of the documentary credit

The issuing bank opens (issues) the documentary credit through its correspondent bank in the seller’s country.

Act 3: Notification of the documentary credit

The advising bank notifies the beneficiary of the credit opening and (possibly) adds its confirmation. In this case, it undertakes to pay the seller if compliant documents are submitted within the specified time limits (the advising bank can refuse to add its confirmation, it must notify the issuing bank without delay if necessary).

Act 4: Shipment of goods

While abiding by the conditions and the shipment deadline stipulated in the credit, the seller (exporter) dispatches the goods according to the mode of transport and Incoterm provided for in the contract and mentioned in the credit.

Act 5: Issuance of the transport document

As soon as the goods are collected, the transporter gives the seller the transport documents: bill of lading, air waybill, consignment note, etc.

Act 6: Presentation of documents

The beneficiary shall collect the documents required by the documentary credit and present them, within the stipulated deadline, at the counters of the notifying and/or confirming bank.

Act 7: Payment to the beneficiary

If the documents appear to comply with the credit’s terms and conditions, and the deadlines are met, the confirming bank pays the value of the documents (in the event of a sight payment) minus its fees.

Act 8: Transfer of documents to the issuing bank

The advising and/or confirming bank sends the documents to the issuing bank by express mail in 2 separate batches in order to avoid the loss of documents.

Act 9: Reimbursement to the advising bank

The advising bank will be reimbursed as indicated in the documentary credit (by debiting the account of the issuing bank based in its country or in another bank, known as the reimbursement bank).

Act 10: Collection of documents (buyer side)

The issuing bank accepts the documents and makes them available to its client (the applicant).

Act 11: Payment to the issuing bank

The issuing bank debits its client’s account for the same amount as the credit, while adding its fees.

Act 12: Claim of the goods

In the case of a maritime shipment, the buyer (the applicant) in possession of the original bill of lading of his order is entitled to claim the goods from the “bailee” of the goods at the port of arrival.

Act 13: Delivery of the goods

The goods are delivered to the bearer of the bill of lading, i.e. the buyer (or his agent).
The documents have been returned to him through the banking channel, so he can now clear the goods through customs and take possession of them.
The documentary credit therefore allowed the exporter (the beneficiary) to be paid the amount corresponding to the goods that are shipped.
In return, the importer (the applicant) receives, within strict deadlines, goods that comply with the conditions stipulated in the credit (except in the event of Discrepancies or fraud).
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