CargoWise ERP Glossary - Key Terms & FAQs

Our CargoWise ERP Glossary Terms provide clear, concise definitions of key terms used in CargoWise, helping users navigate the system with confidence. Along with these definitions, we've included in-depth FAQs to clarify complex concepts, ensuring you get the most out of your CargoWise solutions.

Letter of Credit (LC)

Last updated: July 23, 2025
Logistics CargoWise
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A letter of credit (LC) in international trade is a financial guarantee issued by a bank on behalf of the buyer, ensuring that the seller will receive payment once certain conditions are met. It provides security to both parties in a transaction, particularly when dealing with international buyers and sellers who may not have an established relationship or trust. The buyer’s bank issues the LC, which serves as a promise to pay the seller once they present the required documents, such as proof of shipment, by the terms outlined in the agreement.

The LC is fully integrated into CargoWise’s financial and document management systems, enabling smooth tracking of trade documents and payments. This connection guarantees that overseas shipments and payments are coordinated, with all essential documentation checked to satisfy the requirements of the LC. Businesses can utilize CargoWise to automate the LC process, increasing productivity, lowering risk, and ensuring trade compliance. The LC system protects both the buyer and the seller from nonpayment or nondelivery, making it a dependable means to conduct international transactions.

Frequently Asked Questions

How does a letter of credit operate in international commerce?

The buyer's bank issues the LC, agreeing to pay the seller whenever the contract's requirements are met (for example, by transporting goods and submitting necessary documents). This protects both parties' interests.

What are the different forms of letters of credit?

Letters of credit might be revocable, irrevocable, confirmed, or unconfirmed. Each type provides varying levels of security and flexibility, depending on the provisions of the trade agreement.

What role does a letter of credit play in international trade?

L/Cs protect both the seller and the buyer by decreasing the risk of nonpayment or nondelivery, particularly in complex or cross-border transactions.

How does CargoWise facilitate the use of LCs?

CargoWise allows users to track LCs, ensure document compliance, and streamline payment processes, reducing manual errors and ensuring seamless international trade transactions.

Can LCs be used for both import and export transactions?

Yes, LCs are used in both import and export transactions. They guarantee that sellers receive payment upon fulfilling contractual conditions and that buyers receive the agreed-upon goods.