# What is a letter of credit? What a letter of credit (LC) is, how it works in international trade, the parties involved, the different types, and how it relates to other business finance products. **Site:** [creditcorp.co.uk/learn/what-is-a-letter-of-credit/](https://creditcorp.co.uk/learn/what-is-a-letter-of-credit/) Creditcorp is the growing name for the Credicorp group. Credicorp Limited is the lender behind it — short-term working capital for incorporated UK businesses. No personal guarantee on any product. This page is a guide; applications go to [credicorp.co.uk](https://credicorp.co.uk/). ## Contents - What a letter of credit does - Types of letter of credit - How to use letters of credit alongside working capital finance - Letter of credit questions - Related guides - Need short-term working capital during a trade cycle? ## Step-by-step guide **Step 1: Identify whether you need a letter of credit or working capital finance** An LC is used when a seller requires a bank's payment guarantee before shipping goods — typically in international trade with an unfamiliar counterparty in a different jurisdiction. Working capital finance (like Credicorp's Bridging Loan or Flex) is used when a company needs cash to fund operations or bridge a timing gap — it is not a payment guarantee. If your supplier requires a bank guarantee before shipping, you likely need an LC. If you need cash to fund a deposit or purchase while waiting for customer payment, a working capital facility may be more appropriate. **Step 2: Contact your business bank if you need an LC** Letters of credit are issued by banks with trade finance capability. Contact your business bank (Barclays, HSBC, NatWest, Lloyds, or a specialist trade bank) and ask to speak to the trade finance team. You will need to provide details of the trade transaction, the seller's requirements, and security for the bank's exposure. The bank will assess your creditworthiness and issue the LC if approved. **Step 3: If you need short-term working capital alongside or after a trade transaction, consider Credicorp** Credicorp's Business Bridging Loan can fund cash flow needs arising from a trade cycle — for example, paying a deposit to a supplier before an LC is arranged, or covering overheads while goods are in transit and payment is pending. The Flex revolving facility can be drawn and repaid repeatedly across multiple trade cycles. These are complementary to trade finance rather than substitutes for it. Apply at credicorp.co.uk. **Step 4: Ensure all trade documentation is in order if you are the seller under an LC** If you are the seller (beneficiary) under a letter of credit, payment is conditional on you presenting the documents specified in the LC — typically a bill of lading, commercial invoice, packing list, and sometimes certificates of origin or quality. Any discrepancy between the documents and the LC terms can allow the bank to refuse payment. Ensure all documentation is correct and compliant before presenting it to the bank. ## Frequently asked questions **What is a letter of credit?** A letter of credit (LC) is a document issued by a bank on behalf of a buyer, guaranteeing payment to the seller — provided the seller meets specified conditions. It is widely used in international trade to reduce the risk that a buyer fails to pay. The bank, not the buyer, takes on the payment obligation. The seller is paid by the bank once it presents compliant shipping and trade documentation. The buyer then repays the bank. **Who are the parties to a letter of credit?** There are four main parties: (1) the applicant (the buyer) — who asks their bank to issue the LC and is ultimately responsible for repaying the bank; (2) the issuing bank — the buyer's bank, which issues the LC and guarantees payment; (3) the beneficiary (the seller) — who receives payment under the LC provided the conditions are met; (4) the advising/confirming bank — the seller's bank, which notifies the seller of the LC and, if confirming it, adds its own payment guarantee. **What is the difference between a revocable and irrevocable letter of credit?** A revocable LC can be modified or cancelled by the issuing bank without the seller's consent — providing very little protection to the seller. An irrevocable LC cannot be changed or cancelled without the agreement of all parties, including the beneficiary. In practice, virtually all commercial letters of credit are irrevocable, because only an irrevocable LC provides meaningful payment security to the seller. **What is the difference between a letter of credit and a bank guarantee?** A letter of credit is a primary payment mechanism — the bank pays when conditions are met, and payment is expected to be made. A bank guarantee is a secondary obligation — the bank only pays if the applicant defaults. In trade finance, an LC is used when the seller needs certainty that payment will be made; a guarantee is used when a party needs security against a potential failure, not as the primary payment route. **Does Credicorp offer letters of credit?** No. Credicorp's products — the Business Bridging Loan, Flex, and Slice — are short-term working capital and invoice finance products for UK trading companies, not documentary trade finance instruments. They are designed for businesses that need to bridge a cash flow gap, not for businesses that need to guarantee payment to a foreign supplier. For a letter of credit, you would approach a business bank (Barclays, HSBC, NatWest) that operates a trade finance desk. Credicorp's products can complement trade finance — for example, funding a deposit to a supplier while a LC is arranged — but they are not LCs. ## About Creditcorp / Credicorp Credicorp Limited is a UK short-term business lender. Products: Business Bridging Loan (14–84 days, 0.25%/day), Credicorp Flex (revolving credit, 0.25%/day on drawn balance), Credicorp Slice (invoice-backed, flat fee). Incorporated UK companies and LLPs only. No personal guarantee. No debenture. Same-day decisions. Total charges capped at 100% of principal. - [Apply or get a quote](https://credicorp.co.uk/) - [Products overview](https://credicorp.co.uk/products/) - [Eligibility](https://credicorp.co.uk/eligibility/) - [All learn guides](https://creditcorp.co.uk/learn/)