Fiducia TogetherLetter of credit
A bank's promise to pay the exporter once documents are presented. Security, at a cost.
Please note: This page explains what a term means. It is general information, not legal, financial, tax or investment advice, and it does not know anything about your business. Before you sign, file or commit to anything, check it with an accountant, a solicitor, or the official guidance we link to.
What it means
A documentary letter of credit is an undertaking by the buyer's bank to pay the seller against presentation of specified documents.
Why it matters
It transfers the credit risk from an unknown overseas buyer to a bank, which is why it is used where the parties do not know each other.
What it looks like in practice
Payment depends on the DOCUMENTS being exactly right, not on the goods being right. Discrepancies are the norm, and a discrepant presentation can be refused.
What to watch out for
Small documentary errors — a spelling, a date, a missing signature — which defeat presentation. Check the terms against what you can actually produce before accepting one.
Where to get proper advice
An FCA-regulated broker, and your bank. Compare the total cost including the spread, not the headline fee. And a trade finance specialist at your bank.
Where to read more
Last reviewed 2026-08-28 by Fiducia Together · Next review due 2027-08-28
Please note: This page explains what a term means. It is general information, not legal, financial, tax or investment advice, and it does not know anything about your business. Before you sign, file or commit to anything, check it with an accountant, a solicitor, or the official guidance we link to.