Why trade finance matters
International commodity trade moves on trust, and banks build that trust through instruments like Letters of Credit. The LC bridges the gap between buyer and seller who may never meet.
How an LC works
The buyer's bank issues a promise to pay the seller once presenting documents that comply with the LC terms. The seller ships goods, presents documents and receives payment — typically within a few days.
Documentary compliance
Discrepancies are the top reason LCs fail to pay smoothly. Every field must match: description of goods, packing, ports, dates and currency.
Types of LCs
Irrevocable confirmed LCs offer the strongest protection. Standby LCs and red clause LCs serve specific needs, such as pre-shipment financing.
Practical tips
Have a bank officer or freight forwarder review your drafts before presentation. Keep scans of every document and respond to discrepancies quickly.
