LC Definition

A Letter of Credit (LC) is a payment system used in international trade. It provides a guarantee from a bank to an exporter that the importer will pay for the goods as per the sales contract. The LC serves as a request from the buyer of goods (importer) to the seller’s bank (exporter) to provide a documentary credit in favour of the seller.

The LC is based on the importer’s creditworthiness and is a way for the exporter to mitigate the risk of non-payment. It helps to ensure that the exporter will receive payment once the goods have been shipped and delivered as per the terms of the sales agreement.

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