Letter of Credit (L/C) payment is a common payment method in international trade. The buyer (importer) opens an L/C through its bank, promising that the issuing bank or its designated bank will pay the seller (exporter) upon presentation of documents that comply with the L/C terms. It is typically used when the buyer and seller are cooperating for the first time, the transaction amount is large, or they are not sufficiently familiar with each other's creditworthiness, using bank credit to replace commercial credit and reduce collection risk. Precautions include: L/C terms must be consistent with the contract; documents must strictly comply with the principle of 'documents complying with the L/C and documents being consistent with each other,' otherwise payment may be refused; attention must also be paid to the type of L/C (e.g., irrevocable, confirmed, at sight/usance), validity period, presentation period, and soft clause risks. Compared with T/T, L/C is safer but more expensive and complex; compared with collection (D/P, D/A), L/C makes the bank responsible for payment, which is more favorable to the seller.
📝 Examples
1. We suggest that this transaction be paid by sight L/C, and the L/C must reach our bank 30 days before shipment so that we can arrange production. (Note: Specify sight L/C as the payment method and set the issuing time to ensure stock preparation.)
2. Since you insist on payment by usance L/C, please clarify the accepting bank and who bears the discount charges; otherwise, we cannot accept these payment terms. (Note: This involves negotiation of details for a usance L/C, emphasizing cost sharing to control risk.)
💡 Foreign Trade Tips
Foreign trade terms are the foundation of international business communication
Trade practices may vary slightly by country; pay attention when using them
When using terms in contracts, specify the applicable version (e.g., Incoterms 2020)
For unfamiliar terms, use GlobalSync's multilingual email helper to confirm with your partner