Sale contract agreed
The buyer and seller agree terms, and the buyer applies to their bank for an LC in the seller's favour.
Trade Finance
Letter of Credit
A Letter of Credit replaces reliance on a buyer's creditworthiness with the creditworthiness of the issuing bank — used to manage payment risk between buyers and sellers who may not have an existing relationship.
What It Is
A bank's payment undertaking, not a personal promise
A Letter of Credit (LC) is a document issued by a bank at the request of a buyer (the applicant), in favour of a supplier (the beneficiary). It provides an irrevocable payment undertaking against the presentation of documents that comply with the LC's terms.
LCs are used primarily in international trade, where a supplier in one country is dealing with a buyer in another and neither party has an existing relationship to rely on. Because the issuing bank's undertaking replaces the buyer's personal promise to pay, the mechanism significantly reduces the risk of non-payment for the seller and gives the buyer assurance that payment is only released once shipping documents are in order.
Import Letters of Credit are opened by a buyer in favour of an overseas exporter; Export Letters of Credit describe the same instrument from the beneficiary's side.
Who issues this instrument
Letter of Credit instruments are issued by a bank or other authorised financial institution, not by MTG. MTG is a non-bank financial company that facilitates access to these instruments and coordinates the process on the client's behalf. See the disclaimer for full detail.
Key benefits
- Access to a global trade network of banks and correspondents
- Reduced risk of non-payment for the seller once documents comply
- The buyer only pays after shipment, improving cash flow
- Potential to raise finance against an assigned export LC
- A recognised, standard mechanism across international trade
How It Works
The typical process.
Every transaction is different; this is the general shape of how letter of credit arrangements proceed.
LC issued
The issuing bank opens the LC and advises the seller's bank of the terms and conditions.
Goods shipped, documents presented
The seller ships the goods and presents documents that comply with the LC terms.
Documents checked
The bank checks the documents against the LC terms before releasing payment.
Payment released
The issuing bank pays the seller (or the seller's bank) and claims settlement from the buyer.
MTG's Role
How MTG helps
MTG facilitates Letter of Credit arrangements for clients, coordinating with banks and financial institutions to help structure the request, prepare the necessary documentation, and track the transaction through to completion.
We do not issue Letters of Credit ourselves — the issuing bank retains that role and the associated payment undertaking. Our work is to make the process clearer and faster for the client.
- Digital onboarding and document collection
- Transaction tracking through to issuance
- Automated notifications on status and deadlines
- Intelligent document processing for supporting paperwork
Get Started
Discuss a Letter of Credit requirement.
Tell us about the transaction and we'll confirm whether this instrument fits.