# Letter of Credit (L/C)

*Last updated: 2026-06-22*

> A Letter of Credit (L/C) is a payment undertaking issued by a bank: the importer's issuing bank guarantees the exporter payment upon compliant, timely presentation of specified documents – typically a commercial invoice, bill of lading, insurance certificate, and, where required, a certificate of origin.

A Letter of Credit (L/C) is a payment undertaking issued by a bank: the importer's issuing bank guarantees the exporter payment upon compliant, timely presentation of specified documents – typically a commercial invoice, bill of lading, insurance certificate, and, where required, a certificate of origin. The instrument resolves a fundamental tension in cross-border trade: the exporter wants payment security before shipping; the importer wants proof of dispatch before releasing funds. By substituting the bank's creditworthiness for the buyer's, the L/C substantially reduces counterparty risk. Letters of Credit are governed by the ICC's Uniform Customs and Practice for Documentary Credits (UCP 600) and are most common in first-time transactions, high-value contracts, or trade with counterparts in high-risk jurisdictions. They differ from documentary collections, where the bank acts only as a collecting agent and assumes no payment guarantee.

**Source:** [https://iccwbo.org/business-solutions/ucp-600/](https://iccwbo.org/business-solutions/ucp-600/)

## Quick Facts

| Property | Value |
|---|---|
| Term | Letter of Credit (L/C) |
| Language | EN |
| Word count | 136 |
| Last updated | 2026-06-22 |
| Source | https://iccwbo.org/business-solutions/ucp-600/ |

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