Negotiable bill of lading - given by common carrier. Common carrier - shipper. Draft - order to pay money. Issuing bank - buyer's bank issues the letter of credit. Confirmation bank - seller's bank guarantees letter of credit of issuing bank.
Seller demands a letter of credit.
Issuing banks sends the letter of credit to the confirmation bank for its guarantee, which is dependent upon the issuing bank's world reputation. Seller endorses the bill of lading and delivers it and a draft demanding payment to the confirming bank. If the description of the goods in the bill of lading exactly matches the description of the goods in the letter of credit, the confirming bank pays the seller the amount specified in the letter of credit and the draft. The confirming bank endorses the bill of lading and delivers it and the letter of credit to the issuing bank, and the issuing bank reimburses the confirming bank for the amount specified in the letter of credit. The confirming bank endorses and delivers the bill of lading to the buyer and receives the appropriate payment.