A letter of credit (L/C) is a bank’s undertaking to pay the seller of goods once the seller presents documents that comply exactly with the credit’s terms, typically including a clean on-board bill of lading. It substitutes bank credit for buyer credit in international trade.
The mechanism runs on documents, not goods: banks check the presented set, commonly the invoice, packing list, insurance certificate, and transport document, against the credit under the international rules for documentary credits (UCP). Compliant presentation obliges payment even if the underlying commercial relationship has soured.
This is why the negotiable bill of lading matters so much in L/C trade: consigned to or endorsed to the bank, it gives the financing bank control of the goods as security. Discrepancies between documents and credit terms, even trivial ones, delay payment and are the everyday failure mode.
Two tracking angles matter in an L/C shipment. The on-board date on the B/L must be genuine and inside the credit’s latest shipment date, and the tracked load event in TrackingMCP corroborates it. And because originals travel through banks, release at destination can lag arrival, so watching discharge events against free time warns you before demurrage starts.
Contract wording controls. This page is general orientation, not legal advice. The exact terms of your bill of lading, service contract, or sales contract decide how these concepts apply in a dispute.
A letter of credit (L/C) is a bank’s undertaking to pay the seller of goods once the seller presents documents that comply exactly with the credit’s terms, typically including a clean on-board bill of lading. It substitutes bank credit for buyer credit in international trade.
The negotiable B/L is a document of title, so holding it gives the bank security over the goods while it finances the trade. Non-negotiable documents weaken that security, which is why credits usually specify the form precisely.
Any difference between the presented documents and the credit’s requirements: a late shipment date, inconsistent descriptions, a missing endorsement. Banks may refuse payment until discrepancies are waived or cured.
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More in Bills of lading & documents: Bill of lading (B/L) · Telex release · Sea waybill · Switch bill of lading · House vs master bill of lading · Arrival notice · Delivery order (D/O) · Browse all 106 terms →