A letter of credit is a bank-issued promise to pay an exporter when specified documentary conditions are met.
It is commonly used when a seller and buyer do not know each other well or operate under different legal and banking systems. The buyer’s bank issues the credit, while the exporter presents documents—such as an invoice, transport document or insurance evidence—to show that the stated conditions have been satisfied.
The bank deals primarily with documents, not with the physical quality of the goods. That distinction is a frequent source of confusion. A letter of credit can reduce payment risk for the exporter, but it also involves fees, deadlines and strict documentary compliance.
A bill of lading serves a different purpose: it records carriage of goods and can function as a receipt and document of title. A certificate of origin identifies where goods were produced.