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Conceptually, the
Letter of Credit process can be described as follows:
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The buyer applies
for a Letter of Credit to his trade bank, and the bank subsequently issues
the Credit on behalf of the buyer. The
Credit is sent to the advising bank in the seller’s country. The advising bank, which may or may not
also be the negotiating bank, formally advises the Letter of Credit to the
seller.
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The seller ships the
goods to the buyer; and sends the documents required for payment by the
Letter of Credit to the advising and/or negotiating bank.
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The negotiating bank
examines the documents for compliance, and forwards them to the issuing bank
for payment. When the negotiating bank
receives the money from the issuing bank, it pays the seller.
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