Refer to the diagram above for each numbered step.

Buyer and Seller

1. The buyer and seller agree on the terms of sale: (a) specifying a documentary credit as the means of payment, (b) naming an advising bank (usually the seller's bank), and (c) listing required documents.

Buyer (Applicant/Importer)

2. The buyer applies to his bank (issuing bank) and opens a documentary credit naming the seller as beneficiary based on specific terms and conditions that are listed in the credit.

Issuing (Buyer's) Bank

3. The issuing bank sends the documentary credit to the advising bank named in the credit.

Advising (Seller's) Bank

4. The advising bank informs (advises) the seller of the documentary credit.