Letter of Credit for Importers

Types of LC's

Importers frequently utilize letters of credit (LCs) as a vital tool to establish security and build confidence in their global transactions. A letter of credit is a formal financial document issued by a bank on the importer's behalf, providing assurance that the exporter will be promptly compensated once they fulfill the agreed-upon conditions of the transaction. This mechanism not only helps mitigate the risks inherent in international trade but also fosters trust between the parties involved. Below are several reasons why importers consistently depend on LCs to facilitate smoother and more reliable trade operations:



  • Sight LC

    A Sight Letter of Credit (Sight LC) is a type of Documentary Letter of Credit (LC) in which payment is made immediately upon presentation of compliant documents to the issuing bank. This is a common method used in international trade to ensure that a seller receives payment promptly, once they provide the required documents proving shipment or performance.

  • Usance/Deference LC

    A Usance Letter of Credit (Usance LC), also known as a Time Letter of Credit, is a type of letter of credit where the payment is made at a specified future date, usually after a certain number of days from the presentation of the required documents, rather than immediately (like a Sight LC).

  • Red Clause LC

    A Red Clause Letter of Credit (Red Clause LC) is a type of letter of credit that allows the beneficiary (usually the seller or exporter) to receive advance payment or partial payment before shipping the goods or fulfilling the contract terms. The "Red Clause" refers to the specific provision in the LC, which is usually written in red ink (though this is symbolic rather than a requirement), that authorizes the bank to make an advance to the seller before the shipment is made.

  • Revolving LC

    A Revolving Letter of Credit (Revolving LC) is a type of letter of credit that automatically renews or replenishes itself up to a specified amount within a set time period. This type of LC is typically used for recurring transactions, where the buyer and seller have an ongoing business relationship and expect to trade multiple times over a period of time.

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  • Pre Advice MT705

    The MT705 is a type of SWIFT message used in international trade finance to issue a Pre-Advice of Letter of Credit (LC). The MT705 is a notification from a bank (usually the issuing bank) to a beneficiary (typically the seller or exporter), informing them of the intention to issue a Letter of Credit (LC) in their favor. It serves as a preliminary step before the actual LC is formally issued, providing the beneficiary with the essential details of the LC that is about to be established.

  • Issuance Procedure For LC

    • Our modus operandi is standard banking practices and is transparent as stated below:
    • Client will send us the Filled, Signed and Sealed LC application form (attached below) along with supporting documents like Proforma Invoice from Supplier or Sales Purchase Agreement. We will prepare and send the draft of LC as per the application form and the underlying document requirement.
    • Client should conclude with their Beneficiary using the draft provided by us. Once the draft is concluded, Client should send us the following:
    1. Final draft with their sign and seal;
    2. Letter of Interest confirming acceptance for the draft and advising us to proceed further;
    3. Their Bank statement evidencing the availability of funds to cover the issuing cost.
    • Upon receiving the above stated 3 documents, the standard Indemnity Documents to be signed by the individual directors/shareholders, Board resolution to be signed by all directors/shareholders, Bill of Exchange to be signed by the authorized signatory, source of funds to be signed by authorised signatory and application and agreement to be signed by the authorised signatory, all these will be provided to the Client.
    • The Client has to submit the KYC documents as per the list we provide as a part of KYC and AML compliances.
    • Also an eKYC declaration letter will be given to Client, which needs to signed and sealed and sent back to us.
    • Once we receive the Signed eKYC declaration letter, we will issue an invoice of 1,500 USD for eKYC which client needs to pay.
    • Upon receipt of this payment we will release a eKYC link to client
    • Client needs to submit all the signed and sealed filled up documents, on the eKYC link/portal shared by us after which our KYC and Compliance team will review the documents.
    • Our KYC & compliance team will confirm if the submitted documents are in order and if yes, we will issue an invoice to Applicant, from the Bank towards the issuing fees (which is non-refundable after issuance of the instrument to the beneficiary bank)
    • After Client transfers the issuance fees, within 7 - 10 banking days we will get the instrument issued and it will be delivered to the Supplier/Beneficiary bank.
    • End of transaction up to issuance.

Risk Mitigation: Importers may be dealing with unknown or distant suppliers, making it challenging to assess their reliability. An LC reduces the risk of non-delivery by requiring specific documentation (e.g., bills of lading) before payment is released, ensuring that the goods are shipped as agreed.


Trust and Negotiation Tool: In international trade, letters of credit are a globally recognized means of payment, which helps build trust between buyers and sellers who may not have a longstanding relationship. Knowing that payment is guaranteed by a bank provides confidence to both parties, facilitating smoother negotiations.


Access to Credit and Cash Flow Management: For importers, an LC allows them to buy goods without having to pay in full upfront, freeing up working capital that can be used for other operational needs. The importer’s bank guarantees payment, but actual payment is only made once the goods are shipped and the terms are met.


Legal Protection: Letters of credit are governed by standardized international rules, such as the International Chamber of Commerce’s Uniform Customs and Practice for Documentary Credits (UCP 600). This regulatory framework helps protect both parties, providing a legal basis for resolving disputes.


Currency and Exchange Rate Stability: With an LC, importers can secure the currency and payment terms, reducing the risk associated with fluctuating exchange rates.


In short, a letter of credit protects the interests of importers by guaranteeing that their obligations will be met only when their requirements are satisfied, reducing financial risks and fostering trust in cross-border trade.