Letter of Credit for Traders

Types of LC's

A Letter of Credit (LC) is a financial instrument provided by a bank that guarantees a buyer's payment to a seller, provided the seller meets specific conditions and presents the required documentation. Commonly used in international trade, an LC assures the seller that they will receive payment, reducing the risk associated with cross-border transactions. Here are the main benefits for traders:

  • Transferable LC

    A transferable letter of credit (LC) is a type of documentary credit that allows the original beneficiary (the first beneficiary) to transfer all or part of the credit to one or more secondary beneficiaries. It is commonly used in international trade when the first beneficiary is an intermediary or broker, such as a trader or an agent, who doesn’t supply the goods or services directly but works with suppliers.

  • Usance/Deferred LC


    A usance letter of credit (LC), also known as a deferred payment letter of credit, is a type of LC that allows the buyer (importer) to delay payment for a specified period after the shipment or presentation of the required documents. This arrangement provides the buyer with additional time to sell the goods or manage cash flow before making payment to the seller (exporter).

  • Revolving LC

    A revolving letter of credit (LC) is a type of LC that allows the buyer (importer) and seller (exporter) to use the same credit facility multiple times under specific terms and conditions. It is typically used in long-term business relationships or contracts involving repeated transactions of similar value.

  • Back to Back LC

    A back-to-back letter of credit (LC) is a financing arrangement involving two separate but related LCs. It is used when an intermediary (such as a trader or agent) facilitates a transaction between a buyer and a supplier. The intermediary uses the first LC (master LC) issued by the buyer’s bank as security to open a second LC (back-to-back LC) in favor of the supplier.

  • 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.

1. Payment Security

For exporters, an LC guarantees that payment will be received as long as they meet the specified conditions, such as shipping documents or product inspection certificates. This reduces the risk of non-payment, especially in international deals where legal recourse may be limited.


2. Enhanced Credibility and Trust

An LC serves as a neutral, bank-backed payment mechanism, which helps build trust between the buyer and seller. By securing an LC, the buyer demonstrates financial credibility, giving the seller confidence in their ability to fulfill the payment.


3. Facilitates Trade with Unknown Partners

In international trade, traders often conduct business with new or unknown partners. An LC offers protection and security to both parties, making it possible to initiate business relationships and expand into new markets without excessive financial risk.


4. Access to Better Trade Terms

By reducing the payment risk, an LC often enables buyers to negotiate more favorable terms, such as extended credit or better prices. Sellers, knowing that payment is secured, may also be willing to provide competitive terms, further facilitating smoother transactions.


5. Improved Cash Flow Management

For buyers, an LC allows them to control their cash flow more effectively. Rather than paying in advance, buyers pay only once the goods are shipped and the terms are met. This enables them to reserve working capital for other operational needs until the goods are in transit.


6. Compliance with International Trade Standards

Letters of credit are governed by international regulations, such as the Uniform Customs and Practice for Documentary Credits (UCP 600). This standardized framework reduces the potential for disputes, providing both legal protection and efficient conflict resolution.


7. Reduced Political and Economic Risk

For exporters in politically or economically unstable regions, an LC mitigates the risk of non-payment due to sudden currency restrictions or political events. The bank’s guarantee in an LC provides a buffer against such risks, which is valuable in volatile markets.


In essence, an LC is a vital tool for managing risk, maintaining cash flow, and ensuring trust in international trade transactions, making it a preferred choice for buyers and sellers engaged in cross-border commerce.