Letter of Credit Transaction Flow: A Step-by-Step Map
A step-by-step map of who does what, and when, in a Letter of Credit transaction.
Reviewed by LCCheck team (owner-approved) · 2026-10-12
Short answer
A Letter of Credit transaction moves through four phases: agreement (buyer and seller agree terms), issuance (issuing bank sends the credit, advising bank passes it on), performance (seller ships and prepares documents) and settlement (documents are presented, examined and paid, then released to the buyer to collect the goods).
| Phases | Agreement, issuance, performance, settlement |
|---|---|
| Message | MT700 issue; MT707 amendment |
| Documents flow | Seller → banks → buyer |
Agreement
- Sales contract specifies payment by Letter of Credit, amount, dates and documents.
Issuance
- Buyer applies to issuing bank.
- Issuing bank sends MT700 to advising bank.
- Advising bank authenticates and advises seller.
Performance
- Seller reviews terms, requests amendments.
- Seller ships and gathers documents.
Settlement
- Seller presents documents to nominated bank.
- Bank examines within five banking days.
- Compliant: bank pays or commits; documents go to issuing bank.
- Issuing bank reimburses and releases documents to buyer.
Sources
- ICC — UCP 600 (Uniform Customs and Practice for Documentary Credits)
- Swift — MT700 Issue of a Documentary Credit (category 7 standards)
General guidance, not legal advice. Your bank examines documents independently.
Related guides
Check an LC before shipping
Free snapshot in under a minute. No account needed.
Upload your Letter of Credit
PDF · up to 25 MB