Arranging a Letter of Credit
The exact procedure for arranging a letter of credit depends on your bank, your credit status and the nature of the business transaction involved. Once arranged the process of operation is usually as follows:

• You agree terms of the business deal with your supplier
  
• You apply to your bank for a letter of credit.
  
• If accepted your bank ('The Issuing Bank') will issue letter of credit and send it to the supplier’s bank ('The Advising Bank') usually electronically by SWIFT.
  
• The Advising Bank establishes authenticity of the letter of credit and informs your supplier.
  
• Your supplier should check that letter of credit matches the commercial agreement you have concluded, and that all its terms and conditions can be satisfied (e.g. all documents can be obtained in good time).
  
• Your supplier produces and ships the goods as agreed. They then assemble all documents required by the Letter of Credit (e.g. invoice, bill of lading, inspection certificate) and presents to The Advising Bank
  
• The Advising Bank checks the documents against the Letter of Credit. If the documents are compliant, the Advising Bank forwards the documents to The Issuing Bank.
  
• The Issuing Bank checks all the documents again, if they are in order, then it instructs payment according to terms of the letter of credit
  
• The Issuing Bank now debits your account and releases the documents (including transport document), so you can claim the goods from the freight handler.
  

The Issuing Bank and Advising Bank will charge a fee for the arrangement of a letter of credit, these vary from bank to bank and these can be negotiated.

Once the first letter of credit is arranged with your bank its very easy to arrange another & well worth doing if you will be making frequent payments to China.

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