One of the main drawbacks of Letter of Credit is the complexity and documentation requirements involved. The process of applying for and using an LC can be time-consuming and costly, requiring careful attention to detail and compliance with various regulations. Additionally, the documentation required for an LC can be extensive, including invoices, bills of lading, packing lists, and insurance certificates. This complexity can be challenging for businesses, especially smaller ones with limited resources and expertise in international trade.
Letter of Credit (LCs) are essential tools in international trade, providing a secure method of payment for transactions between buyers and sellers. An LC is a guarantee from a bank that a buyer's payment to a seller will be received on time and for the correct amount. LCs help reduce the risk for both parties, ensuring that the seller receives payment and the buyer receives the goods or services as agreed.