Also called: LC, LC at sight, documentary credit
What an LC means
The buyer’s bank issues a credit in favour of the seller. The seller ships and presents the documents the credit lists: often invoice, packing list, transport document, certificate of origin, quality documents, and any inspection certificate named. The bank examines documents against the credit. Many commodity credits name UCP 600 as the governing rules; that applies only when the credit actually names those rules. Other rule sets exist.
LC at sight
“At sight” means payment is due when compliant documents are presented, rather than 30, 60 or 90 days after bill of lading or after sight. It is still a documentary payment. A discrepancy can delay or block it even if the cargo is fine.
Why documents, not the cargo, trigger payment
Sellers like LCs because a bank, not only the buyer, is on the hook if documents comply. Buyers like them because they can specify the documents that must exist before money moves. The cost is rigidity: names, quantities, ports and dates must match within the credit’s tolerances.
What it covers
Payment mechanics against documents. It can require a particular Incoterm, a named inspector, or an on-board bill of lading. Those requirements only work if the commercial contract can actually produce those documents.
What it does not cover
Quality of the physical goods, except to the extent a named certificate is on the document list. Title in every legal system. A cure for a sanctions problem. TT and open-account risk profiles are different instruments, not worse LCs.
Common mistakes
Drafting an LC the seller cannot perform (wrong Incoterm family, impossible inspection, misspelled names). Amending after load. Treating LC and Incoterms as the same thing. Asking for a full LC draft in an RFQ before KYC.
TTC uses these terms in its RFQ and transaction process. Nothing on this page is a licence, a certification, a guarantee of clearance, or a substitute for the documents and clauses of a specific contract.