Secure international payments with
Letters of Credit (LC)
Enable secure import-export transactions with bank-backed Letter of Credit solutions that ensure payment assurance between buyers and sellers across global trade.
Quick Highlights
Understanding Letter of Credit in Simple Terms
A Letter of Credit (LC) is a bank-issued payment instrument that ensures the seller receives payment only after fulfilling agreed trade conditions and submitting required documents.
It is widely used in international trade to reduce payment risk and establish trust between buyers and sellers across different countries.
Common Applications Global Trade
Types of Letter of Credit
Letter of Credit structures are designed to manage payment timing, trade risk, and financial obligations between importer and exporter.
Each type serves a specific purpose based on transaction complexity, trust level, and credit arrangement.
Understanding LC types helps businesses choose the right structure for secure and efficient trade execution.
Sight LC
Payment is released immediately after document verification by the bank, ensuring quick settlement.
Usance LC
Provides a deferred payment period allowing the buyer time to pay after goods are received.
Revocable LC
Can be modified or cancelled by the issuing bank without prior notice, used in flexible trade scenarios.
Irrevocable LC
Cannot be changed without consent of all parties, providing strong payment security in most transactions.
How Letter of Credit Works
Letter of Credit follows a structured trade finance process where banks ensure secure payment flow between buyer and seller.
Each stage is validated through documentation and banking verification, reducing risk in international transactions.
This step-by-step workflow ensures both parties are protected throughout the trade lifecycle.
Trade Agreement
Importer and exporter finalize contract terms including pricing, shipment, and LC as payment method.
LC Issuance
Buyer's bank issues Letter of Credit assuring payment to exporter under defined conditions.
Shipment of Goods
Exporter ships goods and prepares required trade and compliance documents.
Document Verification
Bank verifies submitted documents strictly against LC terms before approving payment.
Payment Settlement
Once conditions are met, bank releases payment securely to the exporter.
Key Benefits of Letter of Credit
Letter of Credit provides strong financial security in international trade by ensuring payments are handled through verified banking channels.
It builds trust between buyers and sellers by reducing uncertainty and enforcing structured compliance in transactions.
These benefits make LC one of the most reliable instruments in global trade finance.
Payment Security
Ensures exporter receives payment through bank-backed guarantee upon fulfilling LC conditions.
Trust Enhancement
Builds confidence between international buyers and sellers, even without prior business history.
Global Trade Enablement
Facilitates secure cross-border transactions and supports expansion into international markets.
Document-Based Control
Payment is released only after strict verification of trade documents, ensuring compliance.
Faster Deal Closure
Reduces negotiation friction and speeds up transaction approvals in international trade.
Use Cases of Letter of Credit
Letter of Credit is widely used in international trade where secure payment assurance is required between buyers and sellers across borders. It becomes essential in high-value, high-risk, or first-time transactions where trust and payment certainty are critical.
Import of Industrial Machinery
Ensures exporters receive guaranteed payment before dispatching high-value equipment.
Bulk Commodity Export
Used in large shipments of raw materials like steel, chemicals, and textiles.
New International Trade Partners
Reduces risk when dealing with unknown buyers or sellers across different countries.
High-Value Cross-Border Deals
Provides secure payment structure in large international transactions.
Government & Institutional Trade
Ensures compliance and payment assurance in regulated procurement contracts.
LC Eligibility Intelligence
Letter of Credit approval is based on structured banking evaluation of trade authenticity, financial stability, and documentation compliance rather than fixed eligibility rules.
Business Legitimacy
Valid business registration and operational existence is mandatory for LC issuance.
KYC & Compliance
Complete identity verification and regulatory compliance required by issuing bank.
Financial Strength
Strong banking transactions and cash flow improve LC approval limits.
Trade Transaction Quality
Genuine import-export contracts and invoices are evaluated before approval.
Bank Risk Policy
Final LC approval depends on internal bank risk assessment and underwriting norms.
Eligibility Assessment
Required Documents for LC
Proper documentation ensures smooth LC issuance, faster bank approval, and secure international trade execution.
KYC Documents
PAN, Passport, or identity proof of authorized signatories.
Business Registration
GST certificate, incorporation certificate, or firm registration proof.
Import Export Code (IEC)
Mandatory code required for all international trade transactions.
Financial Statements
Bank statements, balance sheet, and ITR used for financial evaluation.
Trade Contract / Invoice
Purchase order or agreement defining transaction terms.
GST & Tax Records
GST filings and tax compliance records for business validation.
Verification Flow
Charges & BG vs LC Comparison
Understand cost structure and choose the right trade finance instrument based on your business requirement.
Issuance Charges
Typically charged as percentage of LC value based on bank policy.
Margin Requirement
Depends on credit profile, transaction type, and banking relationship.
Processing Fees
Charged by banks for documentation and LC issuance processing.
Collateral Requirement
May vary based on transaction size and risk exposure.
Bank Guarantee vs Letter of Credit
Start Your Letter of Credit Process
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Apply for Letter of Credit
Initiate your LC application with structured support for documentation, transaction setup, and bank approval coordination.
Apply for LCTalk to Trade Finance Expert
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Get ConsultationLetter of Credit FAQs
Everything you need to know about LC process, usage, and international trade payment security.
A Letter of Credit is a bank-issued payment assurance that ensures the exporter receives payment once all agreed trade documents are verified.
The buyer’s bank issues LC, the seller ships goods, submits documents, and payment is released after bank verification.
Common types include Sight LC, Usance LC, Revocable LC, and Irrevocable LC used in global trade transactions.
Yes, because payment is assured through the issuing bank, reducing the risk of non-payment by the buyer.
Invoice, bill of lading, shipping documents, insurance certificate, and trade agreement are typically required.
Charges include issuance fees, amendment charges, confirmation fees, and bank processing costs depending on structure.
Importers, exporters, and businesses involved in international trade can apply subject to bank approval.
LC ensures payment in trade transactions, while Bank Guarantee secures performance or contractual obligations.
Typically 3–10 working days depending on documentation, transaction complexity, and bank verification.
Yes, SMEs can use LC if they meet eligibility criteria, documentation standards, and bank approval conditions.