Letter of Credit: How our service works

How does the Letter of Credit process work?

There are several stages in preparing and issuing a Letter of Credit: 

1. The importer arranges for the issuing bank to open a Letter of Credit (L/C) in favour of the exporter. Before transmission we recommend that a draft copy be obtained for checking and approval by Business West.
2. The issuing bank transmits the L/C by SWIFT to the nominated bank, which forwards it to the exporter. The nominated bank could be the exporter’s bank or another bank if the issuing bank is unable to transmit directly to the exporter’s bank.
3. The exporter arranges collection of the goods by a freight forwarder, either appointed by themselves or their buyer depending on the Incoterm.
4. The freight forwarder arranges shipment and provides Business West with a draft copy of the transport document for checking and approval. After shipment has been sent the forwarder despatches the original transport documents to Business West to send to the nominated bank along with all other documents and the original Letter of Credit, if required.
5. The nominated bank checks documents for compliance with the L/C and collects payments from the issuing bank for the exporter in accordance with the terms and conditions of the Letter of Credit.
6. The importer's account at the issuing bank is debited at sight or at a future date, depending on the agreed terms of payment specified in the Letter of Credit.
7. The issuing bank releases documents to the importer to claim the goods from the carrier and to clear them at customs.

Important: Keep the terms of the Letter of Credit simple, wording clear, and limit the required documents to the key ones.  Avoid having an excessive goods description shown in the Letter of Credit and request a description of goods be shown in general terms.

Clients who sign up for our fully managed service benefit from: 

• Check an advance draft copy of the Letter of Credit and inform the beneficiary of any suggested amendments. Subsequent draft copies will then be checked if required 
• Receive a copy of the L/C as formally advised by the Bank and prepare appropriate documentation
• Liaise with 3rd parties such as freight forwarders, insurance companies or inspection agencies, to obtain the relevant documentation (draft documents and final approved documents). 
• Arrangement of cargo insurance if required.
• Despatch of documents to banks and distribution to any other relevant parties, for and on behalf of the beneficiary
   

What our fully managed service doesn’t cover:

• The L/C team doesn’t have the facility to provide finance or issue Letters of Credit
• We don’t handle transferable Letters of Credit or back-to-back Letters of Credit in a capacity acting for the middleman
• Import Letters of Credit
• A checking service for draft Letters of Credit and/or documents if clients haven’t signed up for the fully managed L/C service
   

Contact the Letter of Credit team for more advice.