Letter of Credit
Category: Payments
Definition (plain English)
A bank undertaking to pay the seller when presented documents comply exactly with the LC terms, shipment dates, values, descriptions, and required certificates.
Why it matters commercially
An LC can reduce buyer and seller risk, but only when the document requirements match the real shipment and every party can meet the wording, timing, and bank-review standard.
Example
The supplier shipped on time, but payment was delayed because the commercial invoice product wording did not exactly match the LC and bill of lading instructions.
Common mistake
Requesting an LC for safety without checking whether supplier, forwarder, broker, inspector, and bank can produce every required document exactly as written.
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