Sourcing glossary
Letter of Credit
Also known as: L/C, LC, documentary credit
A bank's written commitment to pay a seller once they present shipping and other documents that comply exactly with the terms of the credit, usually issued subject to the ICC's UCP 600 rules.
With a letter of credit, the buyer's bank pays the Chinese supplier only against documents such as the commercial invoice, bill of lading and, if you require it, an inspection certificate. Banks examine documents, not goods, so adding a third-party inspection certificate is how you link payment to quality.
L/Cs involve bank fees and detailed paperwork, so they are mainly used for large orders or new supplier relationships. See how to pay Chinese suppliers.
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