How to Ask Your Buyer for a Letter of Credit
Exporters often know they want a letter of credit (LC) but leave the request too late, or accept whatever the buyer's bank sends. The result can be a credit that is hard to comply with or issued by a bank the exporter cannot rely on. This guide covers how to ask for an LC, how.
Exporters often know they want a letter of credit (LC) but leave the request too late, or accept whatever the buyer's bank sends. The result can be a credit that is hard to comply with or issued by a bank the exporter cannot rely on. This guide covers how to ask for an LC, how to write it into the payment clause and how to check the draft before the buyer's bank issues it.
Short answer: make the LC your stated payment method from the first quotation, write its key terms into the contract, specify which banks are acceptable and whether confirmation is required, give the buyer a terms sheet for their bank, and review the draft before issuance.
Step-by-step: requesting a letter of credit
Decide whether the order needs an LC
LCs make sense for new buyers, large orders, custom goods you cannot easily resell, and buyers in countries where payment or transfer risk is hard to judge. For long-standing buyers with a good record, open account with credit insurance may be enough.
Raise LC terms at the quotation stage
Put "payment by irrevocable documentary letter of credit" in the quotation and pro forma invoice. Price the deal with LC charges in mind. Buyers accept LC terms more easily when they are part of the offer, not a late condition.
Write the LC into the payment clause
The contract should fix the terms the credit must contain, so the buyer's application starts from your wording. A worked example follows these steps.
Set rules for the issuing bank and confirmation
State that the issuing bank must be acceptable to you, and whether you require confirmation by a bank in your country or another strong market. Our guide on when to request confirmation explains the decision.
Send the buyer an LC terms sheet
Give the buyer a one-page summary their bank can copy: beneficiary details, your bank's SWIFT code, amount, tenor, dates, Incoterms rule, ports, documents and charges. This reduces errors in the buyer's application.
Review the draft LC before issuance
Ask the buyer to send the draft from its bank before issuance. Check every field against the contract, and remove clauses that make payment depend on the buyer. Our guide on how to verify a letter of credit before you ship has the full checklist.
Use the LC to fund production if needed
If you need cash to buy materials, a confirmed or well-rated LC can support pre-shipment finance. After shipment, a usance LC can often be discounted. See usance LC discounting.
Example LC payment clause
Example payment clause (adapt with your lawyer and bank):
"Payment: 100% of the contract value by irrevocable documentary letter of credit, [at sight / payable [X] days after bill of lading date], issued by a bank acceptable to the Seller, [confirmed by a bank acceptable to the Seller,] available with [advising or confirming bank] by [payment / deferred payment / negotiation], subject to UCP 600. The letter of credit shall be received by the Seller no later than [date or number of days after contract signature] and shall remain valid for presentation for at least [number] days after the latest shipment date. Required documents: commercial invoice, packing list, full set of clean on board bills of lading, certificate of origin and [inspection certificate issued by named independent inspection company]. All banking charges outside the issuing bank's country are for the account of the [Seller / Buyer]."
Match the documents to your Incoterms rule. Under FOB the buyer arranges freight, so the bill of lading must still be one you can obtain in time. Our guide on Incoterms and LC wording covers the common mismatches.
Which terms to ask for
| Term | Exporter-friendly choice | Why |
|---|---|---|
| Tenor | Sight, or usance with confirmation | Faster or more certain payment |
| Available with | Your bank or the confirming bank | Documents examined in your country, under your control |
| Expiry place | Your country | Presentation deadline you can meet |
| Presentation period | Realistic days after shipment | Time to collect bills of lading and certificates |
| Inspection | Named independent inspection company | No buyer-controlled documents |
| Partial shipments | Allowed if production is staged | Payment for each shipment |
| Charges | Each party pays its own bank, or per contract | Avoid deductions from proceeds |
If the buyer pushes back
Buyers resist LCs because they use bank credit lines and cost money. Offer something in return: a slightly better price, a longer usance period, or LC terms only for the first few orders. If the buyer still refuses, a documentary collection, partial advance or credit-insured open account terms may be the next best option. Whatever you agree, write it into the contract.
Mistakes exporters make
- Agreeing "payment by LC" without stating tenor, banks or documents.
- Starting production before the credit has been advised through a bank.
- Accepting an expiry date abroad that leaves no time to present.
- Letting the buyer add documents only it can issue.
- Forgetting that confirmation needs a bank willing to take the issuing bank risk.
Where an advisor helps
For larger contracts and higher-risk markets, Financely reviews payment clauses and draft credits and can approach banks for confirmation, pre-shipment finance or discounting. It acts as an advisor and arranger. Banks decide whether to confirm or finance.
Frequently Asked Questions
How do I ask a buyer to pay by letter of credit?
Put it in your quotation and contract as the payment method, explain it protects both sides, and send the buyer a short terms sheet their bank can work from. Raising it early avoids the request looking like distrust late in the deal.
What should an LC payment clause include?
LC type and tenor, amount and currency, acceptable issuing or confirming banks, the date by which the LC must be received, latest shipment and expiry dates, the documents required, applicable rules such as UCP 600, and who pays which charges.
Who pays for the letter of credit?
The buyer pays its bank's issuance charges. Advising, confirmation and negotiation charges are often for the seller unless the contract says otherwise. Agree the split in the payment clause. Buyers often resist LCs because they use bank credit lines and cost money, so the charge split is usually part of the price discussion.
What if the buyer refuses a letter of credit?
Consider a documentary collection, an advance payment, credit insurance on open account terms, or a smaller first order. You can also offer something in return for LC terms, such as a slightly better price or a longer usance period. The right fallback depends on the buyer's credit and country, so write it into the contract.
Can I get financing once I have a letter of credit?
Often yes. A confirmed or well-rated LC can support pre-shipment finance to buy materials or discounting after shipment, subject to the financier's view of the issuing bank and your ability to perform. A usance LC can often be discounted after shipment. The bank or financier makes its own decision on whether to finance.
Negotiating LC terms with a new buyer?
See how Financely structures this on Documentary Letter of Credit Services for Importers and Exporters, or send the file for review.
Financely is an advisor and arranger. It does not lend, issue letters of credit or take title to goods, and no financing outcome is promised. Any facility depends on the credit approval of the bank or financier. This guide is general information, not legal, tax or regulatory advice.
Sources and references (checked 14 November 2026)