How letter of credit works

You decided to buy goods (equipment, raw material, material and etc.) and concluded an agreement for delivery with foreign supplier. It is clear that seller wants to get money immediatelly after shipment is made and submitting shipping documents complying with the letter of credit terms to his or nominated bank in order to avoid risks of non-payment. You in your turn  want to give money only when you are sure that the ordered goods are shipped and all your terms and conditions as per letter of credit are fulfilled.

After concluding various delivery terms with your foreign supplier you establish documentary letter of credit in favour of seller (the supplier) through our bank for delivery of goods. Seller is familiarized about conditions of letter of credit though the bank in which he is maintaining  his account and where he will get payment of the supplied goods.

After delivery of goods to point of destination, seller sends shipping and other documents to his bank, which later sends it to our bank and makes payment to supplier, if documents comply with the terms and conditions of letter of credit. On receipt of shipping and other documents complying the letter of credit terms, our bank also scrutnise these for compliance with conditions of letter of credit.
If documents are exactly as per terms and conditions of letter of credit, our bank makes payment in favor of bank of seller and handed over the complet shipping documents to buyer for release of goods.