Letters of Credit 2025 Guide

The Ultimate Guide to Letters of Credit: Top Searched Topics in 2025

Letters of Credit (LCs) remain the backbone of secure international trade, acting as a critical financial safety net for buyers and sellers. As global trade evolves, understanding LCs is more vital than ever. This guide breaks down the most searched LC topics in 2025, combining foundational knowledge with emerging trends.

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1. What is a Letter of Credit? (The Basics)

• A bank-issued guarantee ensuring sellers get paid if buyers fulfill agreed terms.
• Key elements: Buyer (applicant), seller (beneficiary), issuing bank, advising/confirming banks.
• Core principle: Banks deal only in documents, not goods. Payment hinges on document compliance.
• Governance: Standardized by UCP 600 and supported by SWIFT messaging.

2. Top 5 Types of LCs in 2025

Businesses prioritize these LC types for flexibility and risk management.

Type	Key Feature	Best For
Sight LC	Immediate payment upon document submission	Sellers needing quick liquidity
Standby LC	Insurance — pays only if buyer defaults	High-risk transactions
Revolving LC	Covers multiple shipments under one limit	Ongoing buyer–seller relationships
Confirmed LC	Second bank guarantee added	High political risk regions
Deferred LC	Payment delayed 30–180 days post shipment	Buyers needing time to sell goods

Emerging Trend: Green Clause LCs — advances against warehoused goods gaining traction for sustainable supply chains.

3. How LCs Work: Step-by-Step Process

1. Buyer applies to issuing bank for an LC and pledges collateral.
2. Issuing bank sends the LC to seller's bank (advising bank).
3. Seller ships goods and submits documents (invoice, bill of lading, etc.).
4. Banks verify documents as per UCP 600. Typos or late submissions cause 65% of delays.
5. Payment is released — immediately for sight LCs, later for deferred LCs.

Tip: Follow ISBP (International Standard Banking Practice) to avoid costly document discrepancies.

4. Advantages vs Disadvantages

✅ Pros

• Reduces credit risk — banks absorb buyer default risk.
• Expands markets — safe global trade with unknown buyers.
• Improves cash flow — enables pre-shipment financing.

❌ Cons

• High costs — fees range from 0.1% to 2% of LC value.
• Time-consuming — document checks may delay payment.
• Fraud risk — banks pay based on documents, not goods.

5. Real Life LC Examples

📦 Case 1: Importing Goods from China

A US buyer issues an LC. The Chinese seller ships and submits compliant documents. Payment is made without trust issues.

🏢 Case 2: Commercial Real Estate Lease

Tenants use Standby LCs instead of deposits. Landlords can claim payment if tenants default — useful post-SVB collapse.

6. 2025 Trends: What Businesses Search Now

• Digital LCs: Blockchain-based platforms reducing fraud and paperwork.
• SME Accessibility: Fintechs like Credlix offering lower-cost LC options.
• Bank Stability: Firms now vet issuing banks carefully post-SVB crisis.

7. Common Pitfalls and Solutions

• Discrepancies: 70% stem from inconsistent documents.
  Fix: Use automated checking tools.
• Currency Risk: Forex changes impact final payment.
  Fix: Hedge FX exposure early.
• Expired LCs: Delays in shipping cause missed deadlines.
  Fix: Negotiate flexible expiry upfront.

8. Why LCs Remain Vital for SMEs

• Secure deals with large global buyers.
• Access LC-based financing like discounting.
• Reduce late payment risk from corporates.

Conclusion

Letters of Credit are evolving, not disappearing. In 2025, digital tools, risk mitigation, and flexibility make LCs essential. By mastering compliance and trends, businesses can turn LCs into a strategic advantage in global trade.

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Unsigned Commercial Invoice in LC: Is It a Discrepancy? UCP 600 Rules

Unsigned Commercial Invoice in LC: Is It a Discrepancy? (UCP 600 Rules + Case Examples)

"A $500,000 LC payment was delayed because the commercial invoice lacked a signature—even though the LC didn’t require it. Was the bank right to reject it? Let’s decode UCP 600 rules and how to avoid this trap." 

UCP 600 Rules: The Official Answer

Under UCP 600 Article 18, a commercial invoice:

• Must appear to be issued by the beneficiary (exporter).

• Does not explicitly require a signature—unless:

  • The LC demands it (e.g., “Signed commercial invoice required”).

  • The invoice template includes a pre-printed signature line (per ISBP 745 A21).

Key Exception: Banks follow “strict compliance”—if the document looks incomplete (e.g., blank signature field), they may reject it.

Real-World Bank Practices

• Rejection Risk: 80% of banks treat unsigned invoices as discrepancies unless the LC waives the requirement.

• Case Study: A Turkish exporter’s LC was rejected for an unsigned invoice. They appealed, citing ISBP 745 A21, and won—but delays cost them $15,000 in storage fees.

3 Ways to Avoid This Discrepancy

1. For Exporters:

   • Add this clause to your LC: “Unsigned commercial invoice acceptable.”

   • Remove signature lines from invoice templates if unnecessary.

2. For Importers:

   • Specify in the LC: “Invoice may be unsigned unless otherwise stated.”

3. For All Parties:

   • Use PDF invoices (no blank fields) or e-signatures if allowed.

Pro Tip: Always Check These 2 Things

1. LC Wording: Does it mention signatures? If silent, assume banks may reject unsigned invoices.

2. Invoice Format: Delete unused signature lines to prevent “incomplete document” flags.

What to Do If Your LC Is Rejected

• Dispute: Cite UCP 600 Art 18 and ISBP 745 A21 (if applicable).

• Check the Reason for Rejection: First, take a close look at why the bank rejected the LC. Common reasons include missing signatures, incorrect dates, or discrepancies between the documents and LC terms.

• Reach Out to the Issuing Bank: Contact the bank to get a clear explanation of the rejection. Sometimes, it's just a small error that can be fixed by resubmitting the correct documents.

• Talk to Your Trading Partner: Let the other party know about the issue. If the rejection is due to mistakes on their side, like incorrect documentation, they'll need to correct it and resend the papers.

• Double-Check Your Documents: Go over your documents again to ensure everything matches the LC terms exactly. Small details, like a missing signature or wrong date, can lead to rejection.

• Fix the Errors: If the rejection was due to a minor mistake, like an unsigned document or wrong date, just correct it and send the documents back to the bank.

• Consider Amending the LC: If the issue is more serious, you may need the buyer to amend the LC to align with the agreed terms. This ensures both sides are on the same page.

• Ask for a Reconsideration: If you feel the rejection was unjust, you can ask the bank to reconsider their decision. You might also provide additional documents or clarification to support your case.

• Get Expert Help: If the issue is complicated, consider getting advice from a trade finance expert or an international trade lawyer. They can help you understand your options and avoid future problems.

• Plan for Delays: Rejection can cause delays in payments and shipments. While you're sorting things out, let everyone involved know that there might be some delays and manage expectations.

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CPT Incoterms 2020: Carriage Paid To – Full Explanation with Case Study

CPT Incoterms 2020 – Carriage Paid To is one of the most commonly used trade terms defined by the International Chamber of Commerce (ICC). Under CPT, the seller pays for transportation to the agreed destination, but the risk shifts to the buyer once the goods are handed over to the first carrier. This article explains seller and buyer responsibilities under CPT, compares it with similar Incoterms, and presents a practical case study from Bangladesh to France.

Illustration explaining CPT Incoterms 2020 showing risk transfer point, seller and buyer responsibilities, with case study on garments export from Bangladesh to France


CPT (Carriage Paid To) is one of the 11 Incoterms 2020 rules published by the International Chamber of Commerce (ICC). This term is applicable to all modes of transport — especially relevant in global trade where multimodal transport is used.

What Does CPT Mean?

CPT – Carriage Paid To means the seller is responsible for arranging and paying for the transport of goods to a named destination (e.g., a port or terminal). However, the risk transfers to the buyer as soon as the goods are handed over to the first carrier. This distinction between cost and risk is what makes CPT unique.

Key Responsibilities of the Seller Under CPT:

• Packing and labeling goods for export
• Export documentation and formalities
• Transportation to the agreed destination (main carriage)
• Paying freight charges to the named place of destination

Key Responsibilities of the Buyer Under CPT:

• Import clearance and duties at the destination
• Insurance (optional but recommended, as risk shifts early)
• Unloading and onward transport after destination

Risk vs. Cost in CPT

Although the seller pays for freight, the risk of loss or damage transfers to the buyer once the goods are delivered to the first carrier. This is a critical point to understand for cargo insurance and responsibility handling.

Real-World Case Study: Exporting Garments from Bangladesh to France

Scenario: A garment manufacturer in Dhaka exports 1,000 units of ready-made garments to a fashion retailer in Paris under CPT Incoterms.

• Named place of destination: Charles de Gaulle Airport (CDG), Paris
• Seller’s obligation: The seller arranges air freight via DHL and pays all charges up to CDG.
• Risk transfer point: When DHL receives the goods in Dhaka

Outcome: During transit, a portion of the cargo is damaged. Since the goods were damaged after being handed to the carrier, and CPT was agreed upon, the buyer bears the risk and must handle insurance claims.

This example shows how important it is for buyers to arrange insurance when using CPT terms.

When Should You Use CPT?

CPT is suitable when the seller has better access or cheaper rates with carriers and can manage export formalities. It is often used for air freight, road transport, or multimodal shipments where control over main carriage is needed.

Advantages of CPT:

• Sellers can optimize freight cost through preferred carriers
• Works well with consolidated or multimodal logistics
• Applicable to both domestic and international trade

Disadvantages of CPT:

• Buyers bear risk earlier than expected
• Insurance is not the seller's responsibility

Difference Between CPT and CIF/CIP

• CPT vs. CIF: CIF is only for sea freight and includes insurance (from seller). CPT is for all transport modes and doesn’t include insurance.
• CPT vs. CIP: CIP is similar to CPT but includes seller-paid insurance.

 Risk Transfer Under CPT Incoterms 2020

Correct and precise explanation:

Under CPT (Carriage Paid To), the risk transfers from the seller to the buyer once the goods are handed over to the first carrier at the agreed place of shipment. This risk transfer happens even though the seller pays for transportation to the named place of destination.

It is essential to understand that the first carrier may be a freight forwarder, trucking company, or logistics provider who collects the goods from the seller’s warehouse or facility.

Example:
If a seller in Dhaka ships garments to Paris using DHL under CPT terms, the risk passes to the buyer the moment DHL receives the goods in Dhaka—not when they arrive in Paris.

Suggested contract phrase: 
"Risk shall pass to the buyer when the goods are handed over to the first carrier at the agreed place of shipment, in accordance with CPT Incoterms® 2020." 

When handling payments under CPT (Carriage Paid To) terms using a Letter of Credit (LC), things are generally smoother compared to FCA. That’s because under CPT, the seller arranges and controls the carrier, especially within their own country, making documentation and compliance easier.

In the LC (using SWIFT MT700), the place of receipt should still be clearly stated in Tag 44A—this is important because that’s where delivery is considered to have taken place under CPT. As for timing, the latest shipment date (Tag 44C) or shipment period (Tag 44D) should ideally be extended by a few days—often about 21 days. This is because CPT focuses on when the seller hands over the goods to the carrier, not when the goods physically leave the country.

Since the seller controls the transport arrangement, they can easily get a transport document from the carrier, showing themselves as the shipper or consignor. If it’s a sea shipment, they can even get an onboard bill of lading—though the onboard date might be later than the date when they handed over the goods. According to ICC Incoterms 2020 guidelines... source (e.g., iccwbo.org)

Frequently Asked Questions (FAQ)

What does CPT stand for in Incoterms?

CPT stands for "Carriage Paid To". It means the seller pays for transport to the agreed destination, but risk shifts to the buyer once goods are handed over to the first carrier.

Is CPT applicable to sea freight only?

No, CPT applies to all modes of transport, including road, rail, air, and sea — especially useful in multimodal shipping.

Does the seller need to provide insurance under CPT?

No, under CPT, the seller is not obligated to provide insurance. It's the buyer's responsibility to insure the goods if necessary.

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