Shipping Documents
Letter of Credit (L/C) – Purpose & Key Fields
Bank guarantee of payment to seller upon presentation of compliant documents.
- Document
- Letter of Credit
- Abbreviation
- L/C
- Transport modes
- Sea, Air, Road, Rail, Multimodal
- Issued by
- Banks, Financial institutions
A Letter of Credit (L/C) is a financial instrument issued by a bank on behalf of the buyer, guaranteeing payment to the seller upon presentation of documents that comply with the LC terms. It reduces risk for both parties: the seller is assured of payment, and the buyer is assured that payment is only made when goods are shipped as agreed. LCs are governed by UCP 600 (Uniform Customs and Practice).
Purpose of the Letter of Credit
- Secure payment mechanism for international trade
- Reduces risk for both buyer and seller
- Bank guarantees payment upon document compliance
- Standard in international transactions
Who issues the Letter of Credit
- Banks
- Financial institutions
When the Letter of Credit is required
- Secure international payments
- New trading relationships
- High-value transactions
Key fields on the Letter of Credit
- Applicant (required): Buyer requesting the LC
- Beneficiary (required): Seller receiving payment
- Amount (required): Value of the LC
- Expiry Date (required): LC validity period
- Documents Required (required): List of compliant documents
- Shipping Terms (required): Incoterms, latest shipment date
- Bank Details (required): Issuing, advising, confirming banks
Tips for the Letter of Credit
- Review LC terms carefully before shipment
- Ensure all documents match LC exactly (names, descriptions)
- Submit documents within presentation period
- Work with experienced documentary credit specialists
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Frequently asked questions
What is a Letter of Credit?
Bank guarantee of payment to seller upon presentation of compliant documents.
What is the purpose of the Letter of Credit?
Secure payment mechanism for international trade. Reduces risk for both buyer and seller. Bank guarantees payment upon document compliance. Standard in international transactions
Who issues the Letter of Credit?
The Letter of Credit is issued by: Banks, Financial institutions.