A letter of credit, also called a documentary credit, reaches the forwarder's desk as a documentation specification: the credit dictates what the bill of lading must show, including consignee and notify party wording, port names, and the on-board date. Banks deal with documents, not goods: a complying presentation is paid even if the cargo arrives damaged, and a discrepant one can be refused even if the cargo is perfect. The standing practice is to check the draft bill of lading against the credit's terms before issue, because correcting a bill after presentation costs time the credit's expiry and latest-shipment terms may not allow. A letter of credit is not the same as a bank guarantee: the credit is the primary payment mechanism, paid in the ordinary course against complying documents, while a guarantee compensates only if the principal fails to perform.
Glossary
Letter of Credit (LC)
A contractual commitment by the buyer's bank to pay the seller once the goods are shipped and the documents the credit requires are presented and comply with its terms.