Letter of Credit (L/C)
A bank's undertaking to pay against documents that comply exactly with stated terms.
The bank pays against the documents, not against the shipment. It compares your documents with the terms of the credit. It does not check whether the goods arrived in good order. A perfect delivery can be refused because one document describes it slightly differently from the credit.
Industry figures say that between 60% and 75% of first presentations are refused. Almost all of those refusals are because of document errors, not fraud or a failure to ship.
Read the credit carefully as soon as it arrives, and ask for an amendment then if you need one. An amendment before shipment costs a fee. A discrepancy after shipment means the buyer can choose whether to accept your documents or not.
Also called: documentary credit, LC, DC.