01
Commercial agreement
Buyer and seller agree the underlying sale, payment method, amount, shipment terms and the main LC requirements.
Procedure guide
Documentary LC / MT700 Procedure
A typical documentary-credit lifecycle from commercial agreement to issuance, documents, examination and settlement.
02
LC application
The applicant submits the bank’s LC application and supporting transaction information. A draft or proposed wording may be attached.
03
Credit, collateral and compliance review
The issuing bank checks the customer, facility/cash margin, sanctions, country risk, transaction purpose and proposed terms before accepting the exposure.
04
Draft wording / specimen review
Banks and customers may review draft wording before issuance. A draft or “test copy” is not the same thing as the operative issued credit.
05
Issue the Documentary Credit
Once approved, the issuing bank sends the operative documentary credit through the agreed banking channel; MT700 is the standard SWIFT message used for issuance.
06
Advising bank authenticates and advises
The advising bank checks the apparent authenticity of the message and advises the credit to the beneficiary. Advising does not automatically mean confirmation.
07
Beneficiary reviews the credit
The seller checks amount, expiry, shipment dates, documents, availability, tenor and other conditions before shipping.
08
Amendment if needed
If wording must change, the parties arrange an amendment. MT707 is used for a documentary credit amendment in the SWIFT MT family.
09
Shipment and documents
The beneficiary performs the trade and obtains the documents required by the credit.
10
Presentation and examination
Documents are presented through the stated banking route. Banks examine the presentation against the credit and applicable documentary-credit rules.
11
Honour, negotiation, maturity and settlement
If the presentation complies, payment timing follows the availability and tenor. Reimbursement and applicant settlement follow the banking arrangements.
Where “draft LC”, “specimen” or “test copy” fits
Parties often want to see proposed wording before the bank releases the operative LC. That review step can be useful, but it should be labelled correctly.
- A Word/PDF draft is proposed wording, not the operative bank undertaking.
- A SWIFT copy shown by a counterparty is not a substitute for advice/authentication by the beneficiary’s own bank.
- Whether a bank offers a formal pre-advice stage depends on the transaction and bank process.
Remember thisA common workflow is useful for learning, but the exact application documents, approvals and bank routing can vary.
Reviewed: September 2026Standards and bank policy can change.How MyGreed classifies proceduresOfficial-source directory