Letter of Credit
A bank-backed payment guarantee used in international trade, ensuring the seller receives payment provided they meet the agreed terms.
A letter of credit (LC) is a formal commitment from a bank to make payment to a seller (exporter) on behalf of a buyer (importer), provided that the seller presents the specified documents (such as a bill of lading, commercial invoice, and certificate of origin) within an agreed timeframe.
Letters of credit are the most secure form of payment in international trade because the buyer's bank guarantees payment regardless of the buyer's financial situation, provided the seller meets the documentary requirements. This protects both parties: the seller knows they will be paid, and the buyer knows the goods have been shipped as agreed.
The main types of letter of credit are sight LCs (payable immediately on presentation of correct documents) and usance LCs (payable on a deferred basis, e.g. 30, 60 or 90 days after shipment). Spark Finance arranges letters of credit through specialist trade finance lenders and banking partners for UK importers and exporters.
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