Letter of credit (LC)

A document issued by a bank guaranteeing payment, on behalf of a buyer of goods, when all the conditions stated in the letter have been met.  The importer’s bank is often named “the issuing bank” (or “the opening bank”), while the bank in the exporter’s country is named “ the advising bank” and the exporter is “the beneficiary”.  Due to the nature of international dealings including factors such as distance, differing laws in each country and difficulty in knowing each party personally, the use of letters of credit has become a very important aspect of international trade. The issuing bank also acts on behalf of the buyer by ensuring that the exporter will not be paid until the bank receives a confirmation that all the terms in the letter of credit have been fully met.  Therefore, it is important that exporters carefully read all the conditions and requirements, as these can sometimes be onerous.  Your bank’s Trade Finance Manager will be proficient in the nuances within letter of credit usage.