Clean L/C

A clean letter of credit (Clean L/C) refers to a letter of credit that does not require the beneficiary to submit shipping documents (such as bills of lading, insurance policies, commercial invoices, etc.), and payment can be made solely against a draft drawn by the beneficiary or a simple receipt. It is mainly used for non-trade settlements, such as labor fees, commissions, sample charges, advertising fees, loan repayments, etc., and is also used for advance payments or balance payments in trade. Use cases include: payment of small amounts, advance payments, commissions, technical service fees, etc. Precautions: Since there are no shipping documents as security, the issuing bank bears relatively high risk, so the applicant is usually required to have good credit or provide a margin deposit; the beneficiary should pay attention to whether the L/C terms require the submission of specific documents (such as drafts or receipts) to avoid refusal of payment due to document discrepancies. The difference from a documentary letter of credit is that a documentary letter of credit requires the submission of a full set of shipping documents, and the bank assumes primary payment liability, while a clean letter of credit is paid only against a draft or receipt, involving higher bank risk. Foreign trade practitioners should clearly understand the scope of application of clean letters of credit and avoid misuse when document control over the goods is required.