What is Letter of Credit?

[Roselex D.]

A letter of credit or LC is a written document issued by the importer’s bank (opening bank) on importer’s behalf. Through its issuance, the exporter is assured that the issuing bank will make a payment to the exporter for the international trade conducted between both the parties.

The importer is the applicant of the LC, while the exporter is the beneficiary. In an LC, the issuing bank promises to pay the mentioned amount as per the agreed timeline and against specified documents.

A guiding principle of an LC is that the issuing bank will make the payment based solely on the documents presented, and they are not required to physically ensure the shipping of the goods. If the documents presented are in accord with the terms and conditions of the LC, the bank has no reason to deny the payment.

 

[Amro A.]

Very nice post @Roselex D. and welcome to the team. I have done an LC myself before for a client with an LC service provider who managed all the paperwork and in our case back then, we also had conditions in the LC like loading of the containers below deck because of the saltwater and since the containers were open-top, the insurance demanded this so we had to reload them since it wasn't communicated initially.

The importer wasn't happy at that time since he had to pay around $1750 to reload the container on a much deeper level.