Who pays for a letter of credit?

The importer pays its bank a fee to issue it, and the credit is drawn on the importer's own credit line with that bank. A refused presentation adds bank fees and delays settlement.

What is a confirmed letter of credit?

One where a second bank — usually the advising bank in the exporter's country — adds its own promise to pay. The exporter is paid by that bank on complying documents, before the issuing bank reimburses it.

What is a discrepancy in a letter of credit?

Any way the documents fail to comply with the credit: late shipment, an expired credit, a late presentation, or data that conflicts between documents. The ICC estimates 65–80% of first presentations are refused for one.

Term

Letter of credit (LC)

A letter of credit (LC), or documentary credit, is a bank's promise to pay an exporter once it presents documents that comply with the credit's terms, such as the invoice and bill of lading. The bank checks documents only, not goods. The ICC's rules, UCP 600, are written into virtually every one and have applied since 1 July 2007.

Also called LC, L/C, documentary credit, confirmed letter of credit, UCP 600Updated 13 October 2026

Who is involved

Party	Role
Applicant	The importer, who asks its bank for the credit and pays its fee
Beneficiary	The exporter, paid against complying documents
Issuing bank	The importer's bank, which promises to pay
Advising bank	A bank in the exporter's country that passes the credit on
Confirming bank	Usually the advising bank, adding its own promise to pay

The US International Trade Administration's trade finance guide sets out the logic. The importer's own credit with its bank is used to obtain the LC, and the importer pays the bank a fee for it. An LC is useful when reliable credit information about the importer is hard to get but the exporter is satisfied with the importer's bank. Confirmation goes further: the second bank adds its engagement to pay to the issuing bank's, and pays the exporter on strictly complying documents before it is reimbursed. Without it, the exporter is paid only after the documents reach the issuing bank.

Worked example: the five-day clock

Documents presented Monday 2 November 2026 → banking days Tue 3, Wed 4, Thu 5, Fri 6, Mon 9 → the bank must accept or refuse by Monday 9 November

Assumes no bank holidays in between. UCP 600 replaced the old 'reasonable time' to examine documents with a maximum of five banking days after the day of presentation.

Why so many are refused

In June 2022 the ICC Banking Commission estimated that 65–80% of documents presented under documentary credits worldwide are refused on first presentation. That rarely means no payment at all, but it delays settlement or financing and adds bank fees. The more common discrepancies are timing — the credit's expiry, the shipment date and the presentation period — followed by poorly prepared documents: data that conflicts between documents, missing documents and unauthenticated alterations.

The mistake people make

Writing the invoice from the purchase order instead of from the credit. The UK government's export guidance says invoice information should tally exactly with what is in a letter of credit, because a description or quantity that differs is a discrepancy even when the goods themselves are right — the bank never sees the goods, only the paper.

FAQ