How to: Set Up a Letter of Credit

How to: Set Up a Letter of Credit

A letter of credit is issued by an importer's banker on the importer's behalf and in favor of the exporter, to pay for delivered goods. The following is an example of a common scenario in which a letter of credit is useful:

  • The importer and the exporter have an agreement regarding the sale of the goods.

  • The importer requests that the issuing bank open a letter of credit with a non-fund-based credit limit, in favor of the exporter, based on the sales agreement.

  • The issuing bank sends the letter of credit to the advising bank, which then forwards it to the exporter.

  • The exporter accepts the letter of credit, and ships the goods to the importer.

  • The exporter prepares the necessary shipping documents specified under the letter of credit, and forwards them to the negotiating bank.

  • The exporter receives payment from the negotiating bank based on the letter of credit documents.

  • After receiving the documents from the negotiating bank, the issuing bank reimburses the payment made by the negotiating bank.

  • The issuing bank accepts payment from the importer, and forwards the shipping documents to the importer.

  • The exporter can choose to allow extra time for the importer to submit payment in full, based on the importer's credit standing.

To set up a letter of credit

  1. In the Search box, enter LC Setup, and then choose the related link.

  2. On the Numbering FastTab, fill in the fields as described in the following table.

    Field Description

    Detail Nos.

    The detailed letter of credit number series code.

    Amended Nos.

    The amended letter of credit number series code.

  3. Choose the OK button.

See Also

Show:
© 2016 Microsoft