A letter of credit (LC) is a written commitment from a bank, issued on behalf of a buyer, to pay a seller a set amount once the seller presents documents that prove the agreed conditions have been met. It shifts the payment risk from the buyer’s creditworthiness to the bank’s, which is why it is common in cross-border trade where the two parties do not know each other well. The seller gets paid when the paperwork is correct, not when the buyer decides to release funds.
How it works
The buyer applies to its bank (the issuing bank) to open an LC in the seller’s favor. The seller ships the goods and submits documents such as the commercial invoice, bill of lading, packing list, and any certificates named in the LC. If the documents match the LC terms exactly, the bank pays. Banks review paperwork, not goods, so a small mismatch (a misspelled name, a late shipment date) can delay or block payment.
Why it matters
For the seller, an LC reduces the risk of shipping goods and never getting paid. For the buyer, it confirms payment only happens after the seller performs. The tradeoff is cost and paperwork: banks charge issuance and amendment fees, and terms are strict.
Where it fits in B2B quoting
On larger international B2B orders, a buyer may ask whether you accept payment by LC before accepting a quote. That is a commercial term to settle in your quote conversation, since native Shopify checkout handles card, bank, and similar methods rather than LCs directly. Many merchants quote the price and lead time in a Live Quote, then agree LC terms offline and record the deposit or balance in Shopify. See pricing for plan details.