Letter of Credit (L/C)

A Letter of Credit (L/C) is a financial document issued by a bank guaranteeing that a seller will receive payment from a buyer upon presentation of the specified documents in compliance with the L/C terms.

Banks such as Citibank, HSBC, and JPMorgan issue L/Cs. Required documents include commercial invoices, bills of lading, and insurance certificates. Letters of Credit facilitate international trade by ensuring payment security for both buyers and sellers. Different types include sight L/Cs, which demand immediate payment upon document presentation, and time L/Cs, which allow deferred payment. Other examples are standby L/Cs and revolving L/Cs.