What a Letter of Credit does
A Letter of Credit (LC) is a bank's promise to pay the supplier once they present documents proving they shipped exactly what was agreed. It moves the trust from the supplier to a bank — the supplier ships knowing they'll be paid, and you pay knowing the goods were shipped to spec.
When it's worth it
LCs suit larger orders with a new supplier where neither side wants to take the full risk. They cost bank fees and take time to set up, so for a small first order they can be overkill.
Simpler alternatives for small orders
For a modest first shipment, a verified supplier plus staged payments (a small deposit, balance against inspection at loading) often gives enough protection at lower cost. The key word is verified — payment structure protects you far less if you never confirmed the supplier is real.
The common thread
Whichever instrument you use, it assumes the supplier exists and can deliver. Verification comes first; payment mechanics come second.
Put this into practice
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