Letter of Credit

A Letter of Credit is a payment undertaking usually issued by a bank on behalf of a buyer to favor of seller, covering the amount specified in the credit, payment will be made  once seller  fulfills the credit requirement and present the complying document as per credit terms.

LC process flow:






The aim of this instrument is to provide assurance to both the parties (buyer and seller) of the fulfilment of each party’s obligations in a commercial trade wherein the seller’s obligation to deliver the goods as agreed with the buyer, and the buyer’s obligation to pay for those goods within the specified timeframe  upon complying presentation. 

There are  various types of Letter of Credit include revolving, transferrable, back-to-back, as well as red and green clause letters of credit.

An issuer will use its customer’s funds to make the payment, however, it is a bank responsibility to make t he payment if the document  are presented as per  credit terms and applicant  does not have funds in his account. 

An LC is used in trade finance to ensure that the payment of goods and services will be fulfilled between a buyer and a seller. The rules of a Letter of Credit are issued and defined by the International Chamber of Commerce through their Uniform Customs & Practice for Documentary Credits (UCP 600), used by producers and traders worldwide. Both parties use bank as  an intermediary, to issue a Letter of Credit and legally guarantee that the goods or services received will be paid for.

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Chandan Kumar Yadav
My name is Chandan Kumar Yadav CDCS, CSDG, CITF, PGDIBO,AML-KYC, CCFE, MLIBF, CSF, 6SIGMA a trade finance professional with an experience of 11 years whereas worked with several stages of letter of credit, bank guarantee and on other payments methods of trade transactions such as documentary collection, open accounts, SBLC etc., I have a fair understanding of Trade Based Money Laundering as well, Blogging related to Trade Finance is my passion and I want to share which I know and learn from others, I have worked with Wells Fargo, Yes Bank Limited and Bank of America, India which helped me to gain knowledge, view of Trade Finance and importance of International Trade in world's economy. Trade Finance is thumping product, everyday we are learning something new so in order to keep learning I started this as one of the platform. . Let's Learn Together

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