Letter of Credit Process: Step by Step From Issuance to Payment
The complete Letter of Credit process in 9 steps — contract, application, issuance, advising, shipment, presentation, examination, payment and settlement — with who does what.
3 min readUpdated 2026-10-13Written by LCCheck team
Short answer
The Letter of Credit process runs in nine steps: buyer and seller agree LC terms in the contract; the buyer applies to its bank; the bank issues the credit; an advising bank passes it to the seller; the seller checks it and ships; the seller presents documents; banks examine them; the bank pays or accepts; and the buyer reimburses its bank and collects the goods.
In this guide
| Steps | 9, from contract to settlement |
|---|---|
| Seller's riskiest step | Presenting compliant documents |
| Bank examination | Up to 5 banking days |
| Default presentation period | 21 days after shipment |
The nine steps
| Step | Who | What happens | What to check |
|---|---|---|---|
| 1. Contract | Buyer and seller | Agree payment by LC and its terms | Amount, tenor, documents, dates |
| 2. Application | Buyer | Applies to its bank for a credit | Matches the contract |
| 3. Issuance | Issuing bank | Sends MT700 to the advising bank | — |
| 4. Advising | Advising bank | Authenticates and passes it on | Credit appears genuine |
| 5. Review and ship | Seller | Checks the credit, asks for amendments, ships | Every term is workable |
| 6. Presentation | Seller | Sends documents to the nominated bank | Documents comply, in time |
| 7. Examination | Banks | Check documents against the credit | Up to 5 banking days |
| 8. Payment | Nominated/issuing bank | Pays, accepts or refuses | Notice of refusal if any |
| 9. Settlement | Buyer | Reimburses its bank, gets documents, collects goods | — |
Before shipment: steps 1 to 5
Most problems are cheapest to fix before shipment. The seller should review the draft or issued credit as soon as possible: can the goods ship by the latest date, can every required document be produced, and does any condition depend on the buyer? Changes need an amendment, which every party must agree. See what to check when you receive an LC, pre-shipment review and LC issuance.
After shipment: steps 6 to 9
After shipment, the clock runs. Documents must reach the nominated bank within the presentation period and before expiry. The bank checks that the data in each document matches the credit and does not conflict with the other documents. If it finds discrepancies, it issues one refusal notice listing them, and the seller can correct and re-present within time, or ask the buyer to waive them. See presentation process, notice of refusal and discrepancy waivers.
Worked timeline
Fictional credit: issued 15 April, latest shipment 10 May, 21-day presentation period, expiry 5 June. The seller ships on 8 May, so the presentation deadline is 29 May. Documents arrive at the bank on 20 May; the bank has until 27 May to decide. They comply, and payment is made under the sight credit. Calculate your own dates with the presentation deadline tool.
Where LCCheck fits
LCCheck helps at step 5, by reading the credit's deadlines and required documents, and before step 6, by comparing your documents with the credit to flag potential discrepancies. The bank's examination remains decisive. For the mechanics behind each party's role see how a letter of credit works.
Step by step
- 1Agree the termsPut the LC type, amount, tenor, documents and dates in the sales contract.
- 2Buyer appliesThe buyer asks its bank to issue the credit on those terms.
- 3Bank issuesThe issuing bank sends the MT700 to an advising bank.
- 4Credit is advisedThe advising bank authenticates it and passes it to the seller.
- 5Seller reviews and shipsCheck every term, request amendments if needed, then ship.
- 6Present documentsSend compliant documents to the nominated bank before the deadline.
- 7Banks examineBanks have up to five banking days to decide.
- 8Payment or refusalThe bank pays, accepts a draft, or issues a notice of refusal.
- 9SettlementThe buyer reimburses its bank and uses the documents to collect the goods.
Questions
How long does the whole LC process take?
Issuance and advising usually take days. The longest part is production and shipment. After presentation, banks have up to five banking days to examine documents, and payment follows for sight credits.
What happens if documents are refused?
The bank sends one notice listing every discrepancy. The seller can correct and re-present before the deadline, or the buyer can waive the discrepancies; otherwise the bank is not obliged to pay.
Who controls the goods during the process?
Usually whoever holds the original bill of lading. The buyer gets it only after reimbursing its bank or accepting a draft, which protects both sides.
Sources
- ICC — UCP 600, Uniform Customs and Practice for Documentary Credits
- ICC Academy — trade finance learning
- US International Trade Administration — Letters of Credit
General guidance, not legal advice. Rules are explained in our own words; read the official ICC and Swift texts for exact wording. Your bank examines documents independently.
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