LC (Letter of Credit)
Definition
A Letter of Credit is a payment instrument issued by a buyer's bank guaranteeing payment to the seller, provided the seller presents documents that strictly comply with the terms and conditions stated in the LC.
Why It Matters
LCs shift payment risk from the individual buyer to the issuing bank, but payment depends entirely on precise, compliant documentation — discrepancies are a common cause of payment delay.
Example
An exporter presents a Bill of Lading, invoice and Certificate of Origin that must match the LC terms exactly to receive payment.