Certified Supply Chain Professional (CSCP) Practice Exam

What is the first step in the process of a line of credit?

1. Seller ships cargo

2. Buyer goes to bank for a letter of credit

3. Seller asks for payment

4. Buyer's bank waits for cargo

The correct answer is: Buyer goes to bank for a letter of credit

The process of obtaining a line of credit typically begins with the buyer approaching their bank to request a letter of credit. This document is a financial guarantee from the bank that assures the seller they will receive payment once they produce the required documentation showing that the terms of the sale have been met. Obtaining a letter of credit is crucial because it helps to establish trust between the buyer and seller. Once the letter of credit is issued, it provides security to the seller by ensuring that they will get paid as long as they fulfill the terms outlined in the agreement, such as shipping the goods. After this step, the seller can then proceed to ship the cargo and submit the necessary documents to the buyer's bank for payment, but it is the initiation by the buyer of the letter of credit that marks the first crucial step in the process.