Payment security via the bank (Letter of Credit, L/C): the bank pays only once the agreed documents are presented — security for both sides.
The letter of credit (L/C) is a payment security through the bank: it pays only once the agreed documents are presented. This gives both sides security with larger or new transactions.
With a letter of credit the buyer's bank undertakes to pay against the presentation of precisely defined documents. Seller and buyer are thereby decoupled from a pure relationship of trust — security in exchange for formal strictness.
Why this matters for your import.
For larger first transactions with new overseas sources a letter of credit lowers the risk for both sides — important while there is as yet no delivery history.
How you'll come across the term.
With a new overseas source and a larger volume a letter of credit can make sense — we support the necessary documentation.
Documents that don't match the letter of credit text exactly. Even small deviations can block payment — precision is everything here.