O que é uma carta de crédito? Definição, tipos e como funciona

When conducting cross-border business transactions, securing payment while ensuring goods delivery can be challenging. Both buyers and sellers face risks: importers worry about paying for goods they may never receive, while exporters fear shipping products without guarantee of payment.

This is where the letter of credit becomes invaluable. This comprehensive guide explains everything you need to know about letters of credit (LC), including how they work, different types, advantages, and step-by-step processes.

What is a Letter of Credit?

A letter of credit is a financial document issued by a bank that guarantees payment to an exporter on behalf of an importer. It serves as a promise from the buyer’s bank to pay the seller once specific conditions outlined in the credit agreement are met.

In essence, the LC replaces commercial credit between trading partners with bank credit, providing security for both parties involved in international transactions.

Key Parties Involved in a Letter of Credit

Understanding the main participants helps clarify how LCs function:

Party	Role	Responsibility
Applicant (Importer/Buyer)	Requests the LC	Applies for credit issuance and pays for goods
Beneficiary (Exporter/Seller)	Receives payment	Ships goods and submits required documents
Issuing Bank	Importer’s bank	Issues the LC and guarantees payment
Advising Bank	Exporter’s bank	Notifies beneficiary and verifies LC authenticity
Confirming Bank	Additional guarantor	Provides extra payment guarantee (if applicable)

Why Use Letters of Credit in International Trade?

Letters of credit offer substantial benefits for global trade, particularly when dealing with new business partners or operating in unfamiliar markets.

Protection for Exporters

• Payment guarantee: Banks ensure payment as long as documentation requirements are met
• Reduced credit risk: Bank commitment replaces reliance on buyer’s creditworthiness
• Legal protection: Clear contractual terms protect against disputes
• Cash flow improvement: Can facilitate financing before shipment

Protection for Importers

• Quality assurance: Payment only occurs after meeting specified conditions
• No advance payment needed: Maintains working capital until goods are shipped
• Documentation verification: Banks check all documents for compliance
• Proof of credibility: Demonstrates financial reliability to suppliers

How Does a Letter of Credit Work?

The LC process involves multiple steps and careful coordination between parties. Here’s a detailed breakdown of the complete letter of credit process.

Step-by-Step Letter of Credit Process

Step 1: Sales Contract Agreement

The buyer and seller negotiate and sign a purchase agreement specifying that payment will be made via letter of credit. The contract includes product details, quantity, price, shipping terms, and required documentation.

Step 2: LC Application

The importer applies to their bank (issuing bank) to open a letter of credit in favor of the exporter. The application includes all terms and conditions agreed upon in the sales contract.

Step 3: Issuing the Letter of Credit

After reviewing the application and confirming the buyer’s creditworthiness, the issuing bank creates the LC and sends it to the advising bank (exporter’s bank) for authentication.

Step 4: LC Notification

The advising bank verifies the LC’s authenticity and notifies the beneficiary (exporter). The exporter reviews all terms to ensure compliance is possible.

Step 5: Goods Shipment

Once satisfied with the LC terms, the exporter ships the goods according to the contract specifications and timeline.

Step 6: Document Submission

The exporter prepares and submits all required documents to their bank. These typically include:

• Fatura comercial
• Conhecimento de embarque
• Lista de embalagem
• Certificado de origem
• Insurance certificate
• Inspection certificate (if required)

Step 7: Document Examination

The advising/negotiating bank reviews documents for compliance with LC terms, then forwards them to the issuing bank for final verification.

Step 8: Payment Release

If documents meet all LC requirements, the issuing bank releases payment to the exporter’s bank, which credits the exporter’s account. The issuing bank then debits the importer’s account and releases documents for goods collection.

Types of Letter of Credit

Different types of letters of credit serve various business needs and risk scenarios. Understanding each type helps you choose the right option for your transaction.

Based on Payment Timing

Sight Letter of Credit (At Sight LC)

Payment is made immediately upon presentation of compliant documents. This is the most common and straightforward type.

Best for: Transactions requiring quick payment and minimal credit extension

Usance Letter of Credit (Time LC)

Payment is made after a specified period (30, 60, 90, or 180 days) from document presentation or shipment date. This provides importers with extended payment terms.

Best for: Buyers needing time to sell goods before payment, or those seeking better cash flow management

Exemplo: An importer receives goods on January 1st with a 90-day usance LC. Payment to the exporter occurs on April 1st, giving the importer three months to sell the merchandise.

Based on Bank Commitment

Irrevocable Letter of Credit

Cannot be modified or canceled without agreement from all parties involved. This is the standard type used in international trade, offering maximum security.

Advantages:

• Provides strong protection for exporters
• Cannot be changed unilaterally by the buyer
• Most widely accepted in international transactions

Revocable Letter of Credit

Can be amended or canceled by the issuing bank or buyer at any time without notifying the beneficiary. This type is rarely used today due to minimal protection for exporters.

Note: Most international transactions now require irrevocable LCs as standard practice.

Based on Additional Bank Guarantee

Confirmed Letter of Credit

Includes a second bank’s (confirming bank) guarantee in addition to the issuing bank’s commitment. If the issuing bank fails to pay, the confirming bank ensures payment.

When to use:

• Trading with countries having political or economic instability
• Dealing with unfamiliar foreign banks
• High-value transactions requiring extra security

Unconfirmed Letter of Credit

Only the issuing bank provides payment guarantee, with no additional bank confirmation. The advising bank merely notifies and handles documents without payment commitment.

When to use:

• Trading with established, creditworthy banks
• Transactions with lower risk countries
• When cost reduction is important

Specialized Types of Letters of Credit

Transferable Letter of Credit

Allows the first beneficiary (middleman/trader) to transfer all or part of the credit to one or more second beneficiaries (actual suppliers).

Common scenario: A trading company receives an LC from a buyer but needs to transfer payment rights to the manufacturer supplying the goods.

Important: Can only be transferred once and must be explicitly marked as “transferable.”

Standby Letter of Credit (SBLC)

Functions as a backup payment guarantee. Unlike commercial LCs used for actual transactions, SBLCs only come into effect if the buyer fails to fulfill payment obligations.

Usos:

• Performance guarantees
• Financial guarantees
• Advance payment guarantees
• Bid bonds

Back-to-Back Letter of Credit

Involves two separate LCs: one from the end buyer to the intermediary, and another from the intermediary to the actual supplier. Used when a middleman cannot transfer the original LC.

Red Clause Letter of Credit

Allows the beneficiary to receive an advance payment before shipment. Named after the traditional red ink used to write this special clause.

Best for: Exporters needing funds to manufacture or purchase goods before shipping.

Comparing Different Letter of Credit Types

LC Type	Payment Timing	Modification	Security Level	Best Use Case
Sight LC	Immediate	Cannot change (if irrevocable)	Alta	Standard transactions
Usance LC	Deferred (30-180 days)	Cannot change (if irrevocable)	Alta	Extended payment terms
Confirmed LC	Per terms	Cannot change	Muito alta	High-risk countries
Transferable LC	Per terms	Cannot change	Alta	Intermediary trading
Standby LC	Upon default	Cannot change	Muito alta	Performance guarantees
Red Clause LC	Advance + balance	Cannot change	Médio	Manufacturing orders

Advantages and Disadvantages of Letters of Credit

Advantages

For Exporters:

• Guaranteed payment from reputable financial institutions
• Reduced risk of non-payment or default
• Easier to obtain export financing
• Protection in international legal disputes
• Builds confidence to enter new markets

For Importers:

• Payment only after meeting specified conditions
• Ensures goods match contractual specifications
• Maintains working capital until shipment
• Demonstrates creditworthiness to suppliers
• Bank verification of all documents

For Both Parties:

• Clear, standardized terms and conditions
• Reduced transaction risk
• Facilitates trade with unknown partners
• Internationally recognized payment method
• Dispute resolution framework

Disadvantages

Cost Considerations:

• Banks charge significant fees (typically 0.75% to 2% of transaction value)
• Additional charges for amendments, confirmations, and extensions
• May not be cost-effective for small transactions
• Multiple bank fees can accumulate quickly

Operational Challenges:

• Complex documentation requirements
• Strict compliance needed (minor discrepancies can cause payment delays)
• Time-consuming process
• Requires expertise in international trade documentation
• Limited flexibility once LC is issued

Other Limitations:

• Not suitable for small-value transactions (typically minimum $5,000-$10,000)
• Rigid timeframes and validity periods
• Amendments require approval from all parties
• Bank dependency for transaction completion

Letter of Credit Fees and Costs

Understanding the cost structure helps you budget accurately for LC transactions.

Typical Fee Structure

Fee Type	Who Pays	Typical Rate	Notas
Issuance Fee	Importer	0.75% – 2% of LC value	One-time charge when LC is opened
Advising Fee	Exporter	$50 – $300 flat fee	For notifying and handling
Confirmation Fee	Exporter	0.5% – 2% per year	If confirmed LC is requested
Negotiation Fee	Exporter	0.25% – 0.5%	For document examination and payment
Amendment Fee	Party requesting change	$50 – $200 per amendment	Each modification costs extra
Document Handling	Both parties	$50 – $150	Processing and courier fees
Discrepancy Fee	Typically exporter	$50 – $200	When documents don’t match LC terms
Transfer Fee	First beneficiary	0.1% – 0.5%	For transferable LCs only

Cost Example

For a $50,000 shipment with an irrevocable, confirmed, sight LC valid for 90 days:

Importer’s costs:

• LC issuance fee (1.5%): $750
• Amendment fee (if needed): $150
• Total: ~$900

Exporter’s costs:

• Advising fee: $150
• Confirmation fee (1% for 90 days): $125
• Negotiation fee (0.3%): $150
• Document handling: $100
• Total: ~$525

Combined transaction cost: $1,425 (2.85% of shipment value)

Common Documents Required for Letters of Credit

Proper documentation is crucial for LC transactions. Here are the most frequently required documents:

Essential Documents

1. Fatura comercial
   • Detailed description of goods
   • Quantity, unit price, and total amount
   • Must match LC terms exactly
2. Bill of Lading (B/L)
   • Evidence of goods shipment
   • Title document for goods
   • Must show “shipped on board” notation
3. Lista de embalagem
   • Details of cargo packaging
   • Weight and volume information
   • Container or pallet numbers
4. Certificate of Origin
   • Declares goods’ country of origin
   • Required for customs clearance
   • May be needed for preferential tariffs
5. Insurance Certificate
   • Proof of cargo insurance
   • Coverage amount and terms
   • Usually required for CIF shipments

Additional Documents (as specified)

• Inspection certificate
• Quality certificate
• Weight certificate
• Fumigation certificate
• Beneficiary’s certificate
• Courier receipt
• Manufacturing certificate

Important: All documents must be presented within the LC’s validity period and comply precisely with stated requirements. Even minor discrepancies (wrong dates, spelling errors, inconsistent descriptions) can result in payment delays or rejection.

How to Apply for a Letter of Credit

For Importers (LC Applicants)

Step 1: Choose a Bank Select a bank with strong international trade services and correspondent banking relationships in the exporter’s country.

Step 2: Open an Account Establish a business account with sufficient credit facility or cash collateral to cover the LC amount.

Step 3: Submit Application Complete the LC application form with:

• Beneficiary details (exporter’s name, address, bank information)
• LC amount and currency
• Type of LC required
• Expiry date and location
• Description of goods
• Required documents
• Shipping terms and deadlines
• Special conditions

Step 4: Provide Collateral Depending on your creditworthiness, the bank may require:

• Cash deposit (50% to 100% of LC value)
• Bank guarantee
• Pledge of assets
• Personal guarantee

Step 5: Pay Fees Cover the LC issuance fees and related charges.

For Exporters (LC Beneficiaries)

Step 1: Review LC Terms Carefully examine all conditions when notified by your bank. Check:

• Your name and address are correct
• Goods description matches your quotation
• Required documents are obtainable
• Shipping deadline is feasible
• All terms are acceptable

Step 2: Request Amendments if Needed If any terms are problematic, contact the buyer immediately to request amendments through the issuing bank.

Step 3: Ship Goods Once satisfied with LC terms, proceed with manufacturing and shipping according to specifications.

Step 4: Prepare Documents Gather all required documents ensuring perfect compliance with LC requirements.

Step 5: Submit to Bank Present documents to your bank before the LC expiry date.

Tips for Using Letters of Credit Successfully

For Importers

1. Be Specific: Write detailed, unambiguous LC terms to avoid disputes
2. Allow Adequate Time: Set realistic shipment and document presentation deadlines
3. Use Standard Terms: Follow ICC UCP 600 guidelines and avoid unusual conditions
4. Budget for Costs: Include all LC fees in your cost calculations
5. Maintain Relationships: Work with experienced banks and freight forwarders

For Exporters

1. Check Terms Immediately: Review the LC as soon as received
2. Don’t Ship Until Satisfied: Ensure all terms are acceptable before proceeding
3. Exact Compliance: Match documents precisely to LC requirements
4. Use Checklist: Create a document checklist to avoid discrepancies
5. Submit Early: Present documents well before expiry date
6. Keep Copies: Maintain complete records of all documents and communications

Erros comuns a serem evitados

Documentation Errors:

• Inconsistent goods descriptions across documents
• Wrong dates or missing signatures
• Late document submission
• Expired certificates or insurance

LC Terms Issues:

• Accepting impossible shipping deadlines
• Agreeing to unobtainable documents
• Unclear or ambiguous wording
• Insufficient validity period

Letter of Credit vs. Other Payment Methods

Understanding how LCs compare to alternatives helps you choose the right payment method.

LC vs. Bank Guarantee

Recurso	Letter of Credit	Bank Guarantee
Purpose	Payment for goods	Performance/financial guarantee
When Used	Actual trade transactions	Backup commitment only
Payment Trigger	Document presentation	Default or non-performance
Primary Use	Trade finance	Contract security

LC vs. Documentary Collection

Recurso	Letter of Credit	Documentary Collection
Security Level	High (bank guarantee)	Medium (no payment guarantee)
Bank Role	Guarantees payment	Only handles documents
Cost	Higher fees	Lower fees
Risk	Low for both parties	Higher for exporter
Best For	New relationships	Established partners

LC vs. Open Account

Recurso	Letter of Credit	Open Account
Payment Timing	Upon document compliance	After goods receipt (30-90 days)
Risk for Exporter	Very low	Alta
Risk for Importer	Baixa	Very low
Cost	High (bank fees)	Minimal
Trust Required	Baixa	Alta

Frequently Asked Questions About Letters of Credit

What is the difference between import LC and export LC?

An import LC and export LC are actually the same document viewed from different perspectives. When an issuing bank creates an LC for an importer to pay an exporter, it’s called an “import LC” from the buyer’s viewpoint. When the exporter’s bank receives and confirms the same LC, it becomes an “export LC” from the seller’s perspective.

How long does the LC process take?

The timeline varies but typically:

• LC issuance: 3-7 business days
• LC amendment: 3-5 business days
• Document examination: 5-7 banking days after submission
• Payment processing: 1-3 days after document approval
• Total process: 2-4 weeks from LC application to final payment

Can a letter of credit be canceled?

• Irrevocable LC: Cannot be canceled or amended without consent from all parties (applicant, beneficiary, issuing bank, and confirming bank if applicable)
• Revocable LC: Can be canceled or modified by the issuing bank without prior notice to the beneficiary (rarely used today)

What happens if documents are rejected?

If the bank finds discrepancies in documents:

1. They notify the beneficiary of specific issues
2. The beneficiary can either:
   • Correct documents and resubmit (if time permits)
   • Request the buyer to waive discrepancies
   • Accept payment subject to buyer’s approval
3. If not resolved, the LC may expire without payment

Is a letter of credit safe?

Yes, LCs are among the safest international payment methods because:

• Banks verify all parties’ credentials
• Payment is guaranteed by financial institutions
• Standardized rules (UCP 600) govern transactions
• Clear documentation requirements reduce disputes
• Both buyer and seller are protected

However, fraud can occur if:

• Fake LCs are issued by non-existent banks
• Documents are forged
• Beneficiaries fail to meet conditions

Always verify LC authenticity through your bank and ensure proper due diligence.

What is UCP 600?

UCP 600 (Uniform Customs and Practice for Documentary Credits, 2007 Revision) is the internationally recognized set of rules governing letter of credit operations. Issued by the International Chamber of Commerce (ICC), it standardizes LC practices worldwide and is incorporated into nearly all letters of credit.

How much does a letter of credit cost?

LC costs typically range from 0.75% to 2% of the transaction value, plus additional flat fees for specific services. For a $100,000 transaction, expect total costs of $1,000 to $3,000 depending on:

• Type of LC (confirmed LCs cost more)
• Transaction complexity
• Bank relationships
• Countries involved
• Additional services required

Conclusão

Letters of credit remain one of the most secure and reliable payment methods for international trade, effectively balancing the interests of both buyers and sellers. While they involve higher costs and complexity compared to simpler payment terms, the protection they provide makes them invaluable for:

• High-value transactions
• First-time deals with new partners
• Trade with high-risk countries
• Situations requiring financing
• Complex international shipments

Key Takeaways:

1. LCs replace commercial credit with bank credit for enhanced security
2. Multiple types exist for different business scenarios
3. Precise documentation compliance is critical for success
4. Costs typically range from 1-3% of transaction value
5. Both importers and exporters benefit from LC protection
6. Professional guidance from banks and freight forwarders is essential

Whether you’re an importer looking to secure goods from overseas suppliers or an exporter seeking guaranteed payment, understanding how letters of credit work empowers you to conduct international business with greater confidence and security.

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