Is Letter of Credit (LC) a safe mode of payment for an Exporter?

Is Letter of Credit (LC) a safe mode of payment for an Exporter copy


The information provided here is part of Online export import training guide 


Is Letter of Credit (LC) a safe mode of payment for an Exporter?- Some tips to exporters.

As per the terms of contract, your overseas buyer agreed to open LC against the shipment to be effected by you. As you know, letter of credit is a safe mode of payment commonly for any business especially in international business also. Once after opening letter of credit in your name as beneficiary, your overseas buyer sends a copy to you by fax or mail.


The original can be collected from your bank. Because, letter of credit is opened by your buyer’s bank to the seller’s bank, mentioning beneficiary of LC as you (seller). Any seller or exporter will be happy in opening a letter of credit as terms of payment because the payment guarantee is more assured than shipping by documents against payments (DAP or DA) or documents against acceptance (D.A). As per letter of credit, the opening bank of LC (buyer’s bank) guarantees to effect payment to exporter through exporter’s bank as per the agreed terms and conditions mentioned on letter of credit. My first tip to exporters is, make sure Letter of Credit (LC) has been opened with a prime bank. In other words, the opening bank (buyer’s bank) of letter of credit should be a prime bank.

Who is a ‘prime banker’ . As per the details of assets and liabilities based on the annual financial report of each bank all over the world, the authorities related to banking prepares prime bankers list. The prime banks are the banks who are strong financial background with sound assets and have been serving people with best service. The prime bankers data base will be available with all major reputed banks all over world. You can check this data with your bank. Or your bank may help you to whom to be approached to get the said data.

My second tip to exporters while opening an LC is ‘check the authenticity of Letter of Credit (LC)’.

How to check authenticity of letter of credit (LC)? There are many banks all over world. Now a days, after the introduction of globalization of trade, a number of banks and financial institutions have been introduced all over world with least restrictions within the country. Some of them have been working without any regulations by government also. As I have mentioned previously, you can approach your bank with the copy of letter of credit to verify whether the said LC has been opened by a prime bank.

Why LC with a prime banker is safe?: The financial strength and reputation among people are very high compared to other banks. So, the prime banks work professionally as per their standard banking norms. No individual or firm can influence to violate the banking rules and regulations especially the norms of international trade. This helps the clients globally to depend prime banks for smooth handling of export import business.


You can also read more information by clicking   Letter of credit - How does LC work?      What are the advantages of Letter of Credit to Exporter? How LC is benefited to Importer?   Are there any disadvantages to importer for a consignment under Letter of Credit?   What are the disadvantages of LC to an exporter?   Who are the parties involved in Letter of Credit?   How to check authenticity of LC? What is Prime Banker?  Yes, I am sure, once after going through that articles you will have a good knowledge about Letter of Credit.


The above information is a part of Import Export course online

Other details on how to import export 


Disadvantages of Letter of credit (LC) for Exporter
Advantages of Letter of Credit (LC) for exporters
Spelling error in LC? Is wrong spelling a discrepancy under Letter of credit.
How Letter of Credit (LC) works
Difference between Letter of credit and Bank Guarantee
Difference between LC expiry and shipment date expiry
Difference between Purchase Order and Pro forma Invoice
Transferability of Bill of Lading


How to get Export Orders?
How   to settle dispute in Exports and Imports?
Click here to know India Trade Classification(ITC)
Pre shipment bank finance to suppliers for exports through other agencies
Types of export containers
Measurement of export containers
Exim Policy of India 2015-2020
MEIS, Merchandise Exports from India Scheme
SEIS, Service Exports from India Scheme
Merge your Commercial Invoice and Packing List for all your future exports

Export procedures and documentation

How does a Running bond work?
How does Bill of Lading work in DP payment terms?
How does Bill of Lading work in Sight LC
Transferability of Bill of Lading
Transhipment - A redefinition        
Triangular shipment
Types of Insurance Documents
How does CENVAT Credit work? 
Import General Manifest (IGM)
Importance of Bill of Lading 
 Is Airway bill a documents of title?

Difference between IGST on International goods and IGST on domestic goods.

How is IGST calculated under Imports?

How is IGST rate on imports treated?

GST and e-Commerce Business, FAQ

Definition of E-Commerce under GST

TDS under GST, Frequently Asked Questions

Does CVD exists under project imports?

Baggage clearance after GST implementation

Refund of SAD paid on imports

How to claim ITC under imports?

Procedures to claim Drawback after GST implantation

How to claim IGST refund on exports?

Diminished GST rates on Statues and other ornamental articles

Reduced GST rate on Bells, gongs, mirrors of base metal under HSN 8306

Minimized GST rate on Computer monitors upto 20”

Reduced GST rate on Brooms and brushes

Click here to know GST rate on Goods and Services

GST Exemption list of goods and services

Find HSN number or Service tariff code for GST

GST registration guidelines

Indian GST Laws

How to export your goods?

Learn exports imports free of cost

Is Customs House Agents (CHA ) required to be appointed mandatory?
 Is DP terms of payment safe in export business?
Is Letter of Credit LC safe for an Importer?
 Is ON BOARD CERTIFICATE required for LC negotiation
 What is VACIS exam in US import customs clearance
When can an exporter release bill of lading from shipping company?
When does exporter get EP copy of shipping bill after customs clearance
How does CFR term of delivery work in Export Import business
How does comprehensive policy of ECGC work for exporters?



Mohamed: Am exporter, and i would like to no if need my bank to pay me immediatly aginest the complete documents in my bank. Thanks

Larry: Can LCs be opened by a bank? Have heard of situations about a major company - importer offering payment by 'company LC'. Is this a valid/safe means of receiving payment for goods. Thanks

Srikanth reddy : I am planning to export fresh cut flowers from Bangalore. Can u please tell me what is the method to find buyers example( Export Shipment details or Business portals like, or direct going to abroad and searching for buyers). For Perishables Is LC (mode of payment) is safe or not. Can u please tell me which country has good market to export cut flowers from Bangalore

munish: 1.? Is it necessary for negotiation that LC opening bank should be the correspondent bank of beneficiary's Bank other wise export bill documents will sent on collection. 2.? If there is a clause for reimbursement from 2nd other bank instead of opening bank for lodging claim but LC opening bank is not correspondence bank of beneficiary bank .Can beneficiary bank claim reimbursement from reimbursing bank same day as documents sent on collection to LC opening bank. or if not is there any possibility for doing same by giving beneficiary undertaking to their bank.

Mubarak hossain: Sir this is safety

pawan : can a indian service provider provide services in bangladesh against Letter of Credit . if yes then what is the processor

gangadhar: I am Gadhadar, CEO of a small startup. Thank you for sharing insights on Import Export on your blog. It is an eye opener and is quite helpful. For the longest time, I'd been looking for ways to close an LC of just $200 that couldn't be recovered but we couldn't figure out the procedure for the same.


Discussion Forum

You can also share your thoughts about this article.
Any one can answer on question posted by Readers