A letter of credit (L/C, also called a documentary credit, Dutch accreditief) is a bank's promise to pay the seller once the agreed documents are presented in good order. It bridges the trust gap when buyer and seller don't know each other across a border: the seller isn't relying on the buyer to pay, but on a bank, and the buyer doesn't pay until proof of shipment exists. Nexport Logistics keeps your shipping documents L/C-clean in the Nexportal portal, so payment isn't held up by a paperwork slip.
How it works (the short version)
- Buyer and seller agree to settle by L/C. The buyer asks its bank (the issuing bank) to open the credit in the seller's favour.
- The credit travels via the seller's bank (the advising / nominated bank), sometimes confirmed by a second bank that adds its own payment guarantee.
- The seller ships the goods and presents the required documents: typically the bill of lading, commercial invoice, packing list, certificate of origin, insurance, and so on.
- If the documents comply exactly with the credit, the bank pays, independently of any dispute about the goods themselves. The bank deals in documents, not in goods.
The bill of lading is central
In L/C trade the B/L is usually made out "to order" (negotiable) and consigned to the order of the issuing bank, so the bank controls the goods until the buyer settles. Title then moves by endorsement of the original B/L. That's why the to-order, original-set and endorsement mechanics matter so much here; see Bill Of Lading.
Why your documents must be perfect
L/Cs run under the ICC's UCP 600 rules, and banks apply strict compliance. A single discrepancy (a misspelled name, a weight that doesn't match the packing list, a late presentation, a description that differs from the credit) lets the bank refuse payment until it's fixed or waived. Two recurring traps:
- Presentation period: documents must be presented within the credit's window, and before expiry. Miss it and the credit can lapse.
- The shipment date: the B/L "shipped on board" date must be on or before the latest shipment date in the credit. That's also why a B/L may never be antedated to "make" a deadline — that's document fraud, and banks and insurers do check.
How Nexport Logistics keeps it clean
Nexport Logistics is a freight forwarder under the FENEX conditions. We prepare the B/L and the rest of your documents and cross-check them against the letter of credit before presentation: consignee/notify, "to order" set-up, descriptions, weights, dates and the Incoterm. A discrepancy caught before the bank sees it costs nothing; one caught after stalls your payment. You track every document in the Nexportal portal. Shipping under an L/C? Email info@nexportlogistics.nl and send the credit along, we'll read it with you.
Official reference: ICC — International Chamber of Commerce (publisher of UCP 600). Related: Bill Of Lading · Shipping Documents · Incoterms · Sea Freight