After the parties agree on the contract and the use of an LC, the importer requests an LC in favor of the exporter from the Issuing Bank. The Issuing Bank sends the LC to the Advising Bank. The Advising Bank (Confirming Bank) verifies the authenticity of the LC and forwards it to the exporter.
FROM :( NAME & ADDRESS OF OPENING BANK) TO :( NAME & ADDRESS OF NEGOTIATING BANK) 40A TYPE OF L/C: IRREVOCABLE. 20 L/C Number.
These documents are mostly used in international trade, where trust between buyers and sellers can be limited. Various types of letters of credit serve different purposes, such as commercial, standby, revocable, and irrevocable letters of credit.
For example, if a contract calls for the construction of a building and the builder fails to deliver, the client presents the SLOC to the bank to be made whole. Another advantage when involved in global trade, a buyer has an increased certainty that the goods will be delivered from the seller.