Insights
Letters of credit, explained simply for SMEs
Importing or exporting goods? Here is what a letter of credit does, and why it protects both sides of a trade.
A letter of credit (LC) is one of the most common tools SMEs use to trade safely with unfamiliar suppliers or buyers abroad.
What it does: an LC is a guarantee from Cairo Bank Uganda, on your behalf, that a supplier will be paid once they meet agreed conditions, such as shipping documents confirming goods have been dispatched. This protects the buyer from paying upfront for goods that never arrive, and protects the seller from shipping goods without assurance of payment.
When SMEs use one: importing raw materials or equipment from an overseas supplier for the first time; exporting goods where the buyer's bank requires confirmed payment terms; large one-off purchases where neither party wants to carry all the payment risk.
What you will typically need: a trade contract or proforma invoice with the supplier or buyer; collateral or facility arrangements agreed with your relationship manager; shipping and compliance documentation as the transaction progresses.
Speak to our Trade Finance team to discuss whether a letter of credit, bank guarantee, or import/export financing best fits your transaction. Visit Cairo Trade Finance to learn more.
Please note: this article is educational and does not constitute financial or legal advice. Terms depend on individual due diligence and approval.