| A letter of credit (LC) is a guarantee issued by a bank that promises payment to an exporter on behalf of an importer. This guarantee comes into play only when specific shipment documents like a bill of lading (BOL) are presented and verified as true. LCs enable secure financing by shifting the payment risk from the buyer to bank, allowing exporters to obtain pre-shipment or post-shipment finance against the LC as collateral which improves cash flow in B2B trade. LC is often integrated with BOL to confirm goods’ movement, reducing fraud and supporting financing programs where financiers advance funds early while holding the title till maturity. |
