The letter of credit and the sales contract are commercial documents that bind the exporters and importers at the time of an international transaction. Specific information on payment processes should be stated in them.

Payment clauses are really important, because they are written based on the following considerations:

One: In order to the importer to be able to pay the exporter, the letter of credit must contain payment information that is accurate. If you are the importer, make sure you create a model with your bank before sending a sample to the exporter.

Banks will use payment clauses and compare them with what is written in the letter of credit. The letter of credit will contain the provisions agreed by the exporter and the importer and which will be later reviewed by the bank.

The letter of credit will show the essential requests of the importer and which are aligned with what the exporter can provide. The bank is bound by the letter of credit to give payment to the exporter. If under any circumstances, one of the parties is not satisfied with the letter of credit the bank needs to act as intermediary. The letter of credit is a legal commitment between the exporter and the importer that may or may not be modified with the consent of all participants. The commercial contract is not as legally binding as the letter of credit.

Banks make pre printed forms available for importers. The information contained in these forms is generally aligned with the SWIFT coding system that is used to exchange data between banks and is necessary for international transactions. In most cases, the instructions for opening letters of credit will be sent by the originator to the issuing bank by mail or email.

The importer and the issuing bank will open the letter of credit to the exporter. The importer will act as a payer, in accordance with the basic contract.

Once the exporter is notified that the credit is approved, he or she can deliver the goods for shipment under the terms of the letter of credit. The exporter then presents the documents required by the issuing bank (usually the bill, the insurance policy and the ticket) in order to submit a payment request.

The bank will decide if the documents show that the transaction was performed as planned and will pay the exporter. The next step is then when the bank shows the importer all documents submitted by the seller so that it can take full possession of the merchandise.