Who is responsible for issuing a Letter of Credit (LoC)?

The responsibility for issuing a Letter of Credit (LoC) lies with the buyer's bank. A Letter of Credit is a financial document that provides a guarantee from the buyer's bank to the seller, ensuring payment upon fulfillment of certain conditions, such as the delivery of goods or services.

In the typical international trade transaction, the buyer requests the bank to issue the Letter of Credit in favor of the seller, which assures the seller that they will receive payment as long as they comply with the terms laid out in the document. This process reduces the risk for the seller, who may be concerned about the buyer's ability to pay or the buyer's trustworthiness.

Other parties, such as the seller's bank, may play an important role in the transaction by advising or confirming the Letter of Credit, but the initial issuance is firmly the responsibility of the buyer's bank. The shipping company and the government are not involved in the issuance of an LoC, as their roles pertain to different aspects of international trade and finance.