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IRREVOCABLE LETTER OF CREDIT (LC), FULL PROCESS (DRAFT → FINAL → PAYMENT)
Understanding Irrevocable LC: From Draft Issuance to Final Payment Process
Many people think once an LC is issued… shipment can start immediately
In reality, LC involves draft review, bank verification, and strict document compliance
ACTUAL FLOW (STEP BY STEP)
STEP 1 – Contract Agreement (SPA)
Buyer & Seller agree on:
- Price
- Quantity
- Delivery terms
- Payment via Irrevocable LC
Buyer submits application to Issuing Bank
Required Documents:
- Sales & Purchase Agreement (SPA)
- Proforma Invoice
- Company documents (registration, directors)
- Financial statements / bank statements
- Full transaction details
STEP 3 – Bank Due Diligence
Issuing Bank will:
- Conduct KYC / AML checks
- Assess financial strength
- Determine credit line / collateral
If requirements not met:
Application rejected / delayed
STEP 4 – DRAFT LC (MT700 DRAFT)
Issuing Bank prepares Draft LC wording
Buyer forwards draft to Seller
STEP 5 – Seller Reviews Draft
Seller checks:
- Terms & conditions
- Required documents
- Shipment timeline
If needed:
Request amendment before issuance
STEP 6 – FINAL LC ISSUANCE (SWIFT MT700)
After approval:
Issuing Bank sends MT700 via SWIFT
to Advising Bank (Bank Receiver LC)
LC becomes official & binding
STEP 7 – ADVISING BANK VERIFICATION
Advising Bank (Bank Receiver LC):
- Verifies authenticity
- Advises LC to Seller
STEP 8 – SHIPMENT
Seller:
- Prepares goods
- Ships cargo
- Obtains documents (BL, Invoice, Packing List, etc.)
STEP 9 – DOCUMENT SUBMISSION
Seller submits documents to bank
Bank checks:
Compliance with LC terms
Accuracy & consistency
STEP 10 – DOCUMENT EXAMINATION RESULT
If documents compliant:
Payment will be released
If discrepancies found:
Bank may refuse payment
STEP 11 – FINAL OUTCOME
Buyer accepts discrepancy → Payment proceeds
Buyer rejects → Payment delayed / cancelled
KEY REALITY (IMPORTANT)
LC is document-based, not goods-based:
- Bank checks documents
- Bank does NOT check goods
COMMON MISTAKES
- Proceed shipment based on draft LC
- Ignore document accuracy
- Assume “goods shipped = payment guaranteed”
SWIFT INVOLVED
- MT700 → LC issuance
- MT707 → Amendment
- MT799 / MT998 → NOT LC
CLOSING
“An LC is not just issued… it must be correctly structured, verified, and perfectly documented.”
If you need assistance in LC structuring, draft review, or verification, feel free to reach out.
CONTACT US FOR ASSISTANCE:
WhatsApp:
IR. Zaki
http://www.wasap.my/60192297179/OilPetroleum
(Mr. Saif)
http://www.wasap.my/60105375779/OilPetroleum
(Ms. Nur)
http://www.wasap.my/601129291396/OilPetroleum
Email:
gngroup.sb@gmail.com
admin@gngroupsupplies.com
sales.gngroupsb@gmail.com
Website:
https://www.gngroupsupplies.com/
https://gngroupsupplies.blogspot.com/