The deal · 12
Letter of credit (LC)
A bank's promise to pay you if you present documents that match its terms exactly, on time.
- LC no.
- ILC/0000/2099
- Issuing bank
- Example Bank PJSC, Dubai
- Applicant
- Al Noor Foodstuff LLC, Dubai
- Beneficiary
- Sharma Agro Exports, Indore
- Amount
- USD 20,000.00 (±5%)
- Tenor
- At sight
- Latest shipment
- 15 Feb 2099
- Expiry
- 05 Mar 2099, India
- Rules
- UCP 600
- Issued by
- The buyer's bank (issuing bank), usually advised through your bank in India
- Used in
- Exports and imports
Why it matters
It moves the payment risk from the buyer to a bank. But the bank pays on documents, not on goods — any discrepancy lets the bank refuse.
What goes on it
- Issuing bank, advising/confirming bank, beneficiary (you)
- Amount, currency, sight or usance (days)
- Latest shipment date, expiry date and place
- Goods description, Incoterm, ports
- List of documents required and presentation period
- Rules applied, usually UCP 600
Avoid these mistakes
- Read the draft LC before the buyer opens it. Ask for changes to any clause you cannot meet.
- Get the LC through your own bank and have it checked for authenticity. Fake LCs are a known fraud.
- If the issuing bank or country is weak, ask for confirmation by a bank you trust.