Letter of Credit (Step by step)
(It is an international banking instrument used for the payment in international commerce)
1) The first step is the contact with an exporter in other countriefor making an agreement about the goods, the type of transportation(incoterm), prices, quantities, etc...
2) The exporter issues a proforma invoice(with all the details and characteristics of theproduct, weight, quantities, incoterm to be used) and send it to the importer.
3) The importer goes to the Opening Bank(the personal bank of the importer) with the proforma invoice to apply for aletter of credit.
4) The Opening Bank gives to the importer an aplication to be filled for the letter of credit(format with all the characteristics of the transaction).
5) The opening Bankchecks the aplication and according with the financial situation of the importer it decides if give him a loan.
6) If the letter of credit is accepted, the openig bank gives an ID number for the L/Cand the draft for the importer. ((The letter of credit is official with this ID Number. it means that the money is aprove and the bank just in that moment produce the draft (draft is the loan, themoney in spanish vale vista)
7) The draft is at the name of the beneficiary(Exporter or agent)
8) When the importer receive the draft he send it to the exporter and call him for advising thatthe draft was send it.(call phone).
9) At the same time the Opening Bank sends an Email to the correspondent bank with all the details of the letter of credit to inform about the transaction.10) The Opening Bank deposit the money in the vostro account of the correspondent bank except its fee (fee = comision) This is the first money movement.
11) When the exporter receive the draft hepresent the documents of shipment(collects, commercial invoice, packing list, certificate of origin) to the correspondent bank, the draft and his ID.
12) The correspondent bank checks the draft...
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