Letter of Credit (L/C)
A bank's undertaking to pay against documents that comply exactly with stated terms.
The bank pays on paper, not on performance. It compares your documents against the credit and has no interest in whether the shipment was fine — a perfect delivery can be refused on a document that describes it slightly differently from how the credit does.
Industry figures put first-presentation refusal somewhere between 60% and 75%. Almost all of that is document handling rather than fraud or failure to ship.
Read the credit as a specification the moment it arrives, and ask for an amendment then. An amendment before shipment costs a fee; a discrepancy after shipment costs the buyer's discretion.
Also called: documentary credit, LC, DC.
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