Letter of Credit

A letter of credit (LC) is a financial document in which banks act as intermediaries between a buyer and a seller to guarantee the fulfillment of the transaction.

The importer requests his bank to issue a letter of credit to the exporter or the beneficiary. The exporter/seller’s bank verifies the LC before shipping the merchandise. The exporter/seller ships the goods and provides the necessary documents to the bank, after which the bank pays the exporter/seller the full amount mentioned in the LC.

Letters of credit are used to minimize risk in international business transactions where the buyer and seller may not know each other.

If you are an importer, using a letter of credit can ensure that your business only pays for goods after the supplier has provided proof that they have been shipped. It also allows you to conserve your cash flow as you do not have to make any advance payments or deposits to the exporter. Finally, the letter of credit gives you instant credibility with an exporter by proving your creditworthiness.

If you are an exporter, the letter of credit is insurance in case the buyer does not pay for the goods you shipped. In such a case, the financial institution will cover the outstanding amount. The letter of credit also protects you against legal risks since you have guaranteed payment as long as the delivery conditions are met.

We as trade finance advisers can assist you in the issuance of Sight LC, Usance LC and SBLC.

Types of Letter of Credit