Business
Letters of Credit Return to Favor for Regional Importers
As trust becomes harder to assume, importers are leaning again on instruments that put a bank between buyer and seller.
Letters of credit are becoming popular again with regional importers. The instrument is old and slow by modern standards, but it does one thing well: it puts a bank between buyer and seller when neither side can fully trust the other.
Why an old tool is back
Open-account trade is cheaper and faster, and it works when counterparties know each other. When conditions become uncertain and new suppliers enter the picture, the safety of a bank-backed promise starts to look worth its cost again.
A letter of credit shifts part of the risk onto institutions and ties payment to documented delivery. For a buyer dealing with an unfamiliar exporter, that structure can be the difference between a deal and a decline.
The cost of certainty
The instrument is not free. It carries fees, paperwork and timing friction. But importers are increasingly treating that as the price of certainty rather than an avoidable expense, especially on larger or first-time transactions.
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