Letter of credit: read one without getting burned
The six clauses that decide whether you get paid, and the two that most often cost an exporter money.
A letter of credit is a bank's promise to pay you, on conditions. Meet the conditions exactly and the money arrives. Miss one word and the bank can refuse. So the skill is not trade knowledge. It is reading the document like a lawyer would, before you ship.
What it actually is
Three parties matter: the buyer's bank promises, your bank checks, and you ship. The buyer appears in the document but does not pay you. The bank does.
The promise holds only while your papers match the letter. A mismatch is called a discrepancy, and the buyer can accept or refuse it. That choice is leverage, and exporters feel it most when prices move.
The clauses that decide payment
Read these in this order: the latest shipment date, the expiry date and place, the documents required, the goods description, the incoterm, and whether it is confirmed. Six lines of reading that decide the whole shipment.
The two that cost exporters most: the documents required, because one misspelling of your company name across an invoice and a certificate is a discrepancy, and the latest shipment date, because a liner schedule slip does not move it. The bank counts the days, not the reasons.
Before you accept one
Ask for the draft LC before you sign the contract. Amendments after opening cost time and goodwill, and the buyer must ask their bank for each one.
Check you can produce every required document with the names matching. If a certificate needs an agency, find out how long it takes before the shipment date goes in the contract.
Where Ara helps
Paste the LC into Ara and ask it to list the conditions as a checklist, then check each document against that list before the bank does. The checklist and every document version stay on your PC.
Dealing with a new buyer? Check the registry, sanctions and fraud signals before samples or credit: TradeGraph buyer check playbook (opens in a new tab)
Turn the guide into your next shipment's documents.
Ara runs on your own PC and drafts the export documents with you: it reads the LC terms, fills the checklist and keeps every version. You stay the one who signs.