Under the condition of payment by letter of credit, the issuing bank is the first payer. Therefore, payment by letter of credit is a kind of bank credit.

2. The letter of credit is an independent document independent of the sales contract.

Payment under the letter of credit is a kind of document sale: as long as the documents produced by the exporter after delivery are consistent with the terms of the letter of credit, the bank will guarantee to pay the exporter. The importer obtains documents representing the goods after payment.

Letter of credit refers to the payment commitment issued by the bank in domestic economic and trade activities on the basis of the buyer's application in the purchase and sale contract with the documents conforming to the terms of the letter of credit. It can be divided into buyer's letter of credit and seller's letter of credit according to the business links involved by buyers and sellers.

The general procedure for payment by letter of credit is:

1. Both importers and exporters should clearly stipulate in the sales contract that payment shall be made by letter of credit.

2. The importer applies to the local bank to open a letter of credit, fills in the letter of credit application form, pays a certain deposit or provides other guarantees, and requires the bank (issuing bank) to open a letter of credit to the exporter.

3. The issuing bank shall open a letter of credit in favor of the exporter according to the contents of the application, and notify the exporter through the correspondent bank or correspondent bank where the exporter is located (collectively referred to as the advising bank).

4. After the exporter has shipped the goods and obtained the shipping documents required by the letter of credit, he should negotiate the payment with the local bank (advising bank or other bank) according to the provisions of the letter of credit. (5) The negotiating bank shall indicate the negotiation amount on the back of the letter of credit immediately after negotiating the payment.

The main service functions include:

1. Domestic letter of credit is an off-balance sheet business, which is conducive to reducing the buyer's capital occupation.

2. The buyer can use the extended letter of credit for settlement, or apply for the buyer to pay bills and other financing services, so as to alleviate the pressure of insufficient liquidity.

3. After receiving the domestic letter of credit, the seller can apply to the bank for financing services such as domestic letter of credit packaged loans to speed up the capital turnover.