Letter of Credit

A letter of credit (LC) is an important document in the international trade market. It is a method of payment that is the most secured way of receiving a payment.  It enables trust between the buyer and the seller. LC is issued by a bank on behalf of the buyer’s behalf and guarantees that the seller will receive payment after he completes his end of the transaction. If the buyer is unable to pay then the issuing bank is liable to pay the seller. The Applicant i.e the buyer applies for the Letter of Credit will set out a list of terms and conditions under which he would like to buy and import the goods from the beneficiary i.e the seller. Some details are required as follows:

• A quantity and description of the goods
• Documentary requirements such as; bills of lading,
  commercial invoice, certificate of origin, analysis
  reports amongst other documents
• Details of the receiver must be notified when the
  shipment arrives, the latest date of shipment and
  the expiry date of the L/C
• Which ports/airports are to be used
• The mode of transport used
• Payment terms

The LC is then issued by the buyer’s issuing bank to the seller’s bank after all verification is completed.