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The Letter of Credit: The Ultimate Guide to Secure Global Trade
- Manyi Kiss
- Dec 17, 2025
- 4 min read
In the world of international business, trust is the currency that matters most. Operating across different jurisdictions, legal systems, and time zones exposes both buyers and sellers to significant counterparty risk. Exporters fear shipping goods without certainty of payment, while importers hesitate to pay before delivery.
This is where the Letter of Credit (LC)Â becomes essential. It is one of the most widely used trade finance instruments in global commerce, designed to reduce risk and facilitate secure international transactions.
In this guide, we explain what a Letter of Credit is, how it works in international trade, the difference between LC and SBLC, and how specialized trade finance providers like Credit Glorious can help you secure deals without immobilizing your cash flow.
What Is a Letter of Credit and How Does It Work in Trade Finance?
A Letter of Credit is a trade finance instrument issued by a bank or financial institution on behalf of a buyer (importer), guaranteeing payment to the seller (exporter) once predefined documentary conditions are met.
In practical terms, a Letter of Credit transfers the payment risk from the buyer to the issuing financial institution.
Letter of Credit Definition:Â A Letter of Credit is an irrevocable financial commitment used in international trade to ensure that sellers receive payment, provided that compliant shipping and commercial documents are presented.
How a Letter of Credit Works – The 4-Step Process
Issuance:Â The buyer and seller agree on commercial terms. The buyer requests the issuance of a Letter of Credit through a financial institution or trade finance provider.
Advising and Authentication: The seller’s bank (or advising bank) receives the LC and verifies its authenticity.
Shipment and Documentation:Â The exporter ships the goods and submits documents such as the Bill of Lading, Commercial Invoice, and Packing List.
Payment:Â Once documents comply with the LC terms (typically governed by ICC UCP 600Â rules), payment is released to the seller.
Letter of Credit (DLC) vs. Standby Letter of Credit (SBLC)
Understanding the difference between a Documentary Letter of Credit (DLC)Â and a Standby Letter of Credit (SBLC)Â is critical for structuring efficient international transactions.
Documentary Letter of Credit (DLC): A DLC is a payment mechanism. It is intended to be used as the primary method of payment in import-export transactions.
Standby Letter of Credit (SBLC): An SBLC is a guarantee instrument. It acts as a secondary payment obligation and is only drawn ("cashed in") if the buyer fails to meet their contractual payment terms.
For many SMEs and international traders, the SBLCÂ is particularly effective because it provides security to suppliers without interfering with standard payment methods such as wire transfers or open account terms.
Why a Letter of Credit Is Essential for International Trade Deals
Using a Letter of Credit in cross-border transactions offers clear strategic advantages:
Eliminate Credit Risk:Â Exporters rely on the creditworthiness of the issuing institution rather than the buyer.
Document-Based Control:Â Importers release payment only once shipping documents confirm compliance with contractual terms.
Improve Cash Flow Management:Â A confirmed Letter of Credit can often be discounted or monetized, allowing sellers to access liquidity immediately instead of waiting for extended payment terms.
How to Get a Letter of Credit Without Freezing Your Capital
Traditional banks typically require 100% cash collateral or hard asset pledges to issue a Letter of Credit. This approach severely restricts liquidity and limits business growth.
Credit Glorious provides a smarter alternative.
As a non-bank trade finance specialist operating through dedicated credit facilities, Credit Glorious structures Letters of Credit and Standby Letters of Credit backed by institutional credit lines, not by your operating cash.
Our approach includes:
Capital-Efficient Structures:Â Access Letters of Credit without immobilizing working capital or real estate assets.
Fast Issuance: From compliance approval to issuance, instruments can often be delivered within 48–72 hours, compared to weeks with traditional banks.
Full Regulatory Compliance:Â All instruments are issued in accordance with ICC rules and international banking standards, ensuring global acceptance.
Frequently Asked Questions About Letters of Credit
How much does a Letter of Credit cost?
Letter of Credit costs depend on transaction size, duration, jurisdiction, and risk profile. Fees typically range between 1% and 3% per annum, plus issuance and messaging costs. Credit Glorious structures pricing competitively based on deal-specific parameters.
What is the difference between a Bank Guarantee and a Letter of Credit?
A Letter of Credit facilitates payment in a commercial transaction. A Bank Guarantee compensates a party in case of contractual default. In US and international trade, the Standby Letter of Credit (SBLC)Â often replaces traditional bank guarantees.
How long does it take to issue an LC or SBLC?
Traditional banks may require 2 to 4 weeks. With Credit Glorious, once due diligence and compliance are completed, MT799 drafts or MT760 issuance can occur within a few business days.
Can a Letter of Credit be canceled?
Most modern Letters of Credit are irrevocable, meaning they cannot be canceled or amended without the consent of all involved parties. This ensures maximum protection for exporters.
Conclusion
A Letter of Credit is more than a trade finance document—it is a strategic tool that enables businesses to expand globally while managing risk and preserving liquidity.
Whether you require a Documentary Letter of Credit or a Standby Letter of Credit, Credit Glorious delivers fast, compliant, and capital-efficient solutions backed by institutional credit facilities.
Ready to secure your next international transaction? Contact Credit Glorious today to structure your Letter of Credit without exhausting your cash flow.
