Letter of Credit (LC)

A bank-issued guarantee to pay an exporter on presentation of specified shipping documents. Traditional B2B export payment instrument, rarely used for FBA.

Definition

A Letter of Credit (LC) is a document issued by a buyer's bank on the buyer's behalf, guaranteeing payment to the exporter provided the exporter presents specified shipping and commercial documents in compliance with the LC's terms. LCs are the traditional trade-finance instrument for B2B exports where buyer and seller don't have an established credit relationship.

The typical flow

1. Buyer and seller agree on LC as the payment mechanism
2. Buyer applies to their bank (Issuing Bank) for an LC
3. Issuing Bank sends LC to the seller's AD Bank (Advising Bank) via SWIFT
4. Seller ships goods and gathers documents (bill of lading, invoice, packing list, insurance certificate, certificate of origin, etc.)
5. Seller submits documents to Advising Bank
6. Advising Bank checks compliance, forwards to Issuing Bank
7. Issuing Bank pays Advising Bank (which credits the seller)

Types of LC

• Sight LC — payment on presentation of compliant documents
• Usance LC — payment at a specified date after presentation (30/60/90/180 days)
• Confirmed LC — Advising Bank also guarantees payment, in addition to Issuing Bank
• Revocable / Irrevocable — most LCs today are Irrevocable

For Indian FBA exporters

LCs are typically not used for FBA exports. You're not selling to a foreign buyer with a defined invoice — you're consigning inventory to Amazon's warehouse and getting paid as units sell. Amazon settlements arrive via foreign inward remittance, not via LC.

You may encounter LCs if you also do wholesale B2B alongside your FBA operation. In that case, the LC-based exports run on a completely separate reconciliation from the FBA proceeds — different documentation, different bank workflow, same EDPMS closure obligation.

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