What Are The Steps Involved In Opening A Letter Of Credit?

There are many steps involved in opening an account for letter of credit.

Opening of letter of credit: The letter of credit can be opened by mail or by cable. When the letter of credit is opened by mail, the buyer's bank sends the letter of credit and two carbon copies of the letter to the importer. The importer then dispatches the letter of credit to the exporter in foreign country by mail or air mail. One carbon copy of the letter of credit is kept for record and the second after signing is sent to the bank by the importer. If an importer directs the bank to open letter of credit by cable the buyer's bank sends a cable to the corresponding bank in the foreign country with a request to notify the exporter of the letter of credit and the terms and conditions laid therein. The expense of the telegram is met by the importer. The bank also mails the written confirmation of the cable to the corresponding bank for forward delivery to the exporter. The bank also sends a copy of the cable and the written confirmation to the importer of the merchandise. This is how the letter of credits is opened.