Letter of Credit for China Imports (2026): How It Works, What It Costs, LC vs T/T

Short answer A letter of credit for China imports is a bank's promise to pay your supplier only against compliant shipping documents. On a USD 60,000.00 order, published Gulf tariffs put the buyer's LC fees near USD 599.40, against USD 78.59 for two T/T wires. It is worth it when your deposit is truly at risk.

Key takeaways

• An LC pays against papers, not goods (UCP 600, Article 5). Banks check documents only, so add an inspection certificate if quality matters.

• Deadlines are strict: documents within 21 calendar days of shipment by default, and five banking days for the bank to examine them.

• 65.00% to 80.00% of LC presentations are refused on first presentation, the ICC estimates, mostly over dates and conflicting data.

• Published issuance fees: 0.35% for three months at Virgin Money (UK); 0.20% per month up to AED 100,000.00 at FAB (UAE).

• Example verdict: the LC costs USD 520.81 more than T/T on USD 60,000.00. That is 2.89% of the USD 18,000.00 deposit it protects.

Written by TRG Editorial Team · reviewed by importers

Reviewed by people who import from China every month. Every fee and rule is checked on the official page, last on 01/11/2026. How we check figures

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Your new factory asks for a 30.00% deposit and the balance before loading. You wonder whether a letter of credit for China imports would be safer. Most guides stop at "an LC protects both sides". They rarely show the real tariff, the real deadlines or the real cost gap on one order.

This guide does. It walks through the LC process under the ICC rules, the papers your bank checks, the errors that delay payment and three published bank tariffs. Then it prices one order both ways, so you can decide with numbers.

LC or T/T 30/70: the quick verdict

Most China orders are paid by telegraphic transfer (T/T): a deposit before production and the balance before or at shipment. It is fast and cheap. But your deposit is unsecured until the goods exist, and the balance often leaves before you see them.

A documentary letter of credit (LC) moves that risk to the banks. Your bank pays the supplier only once the agreed documents arrive and match the credit. In return, you pay bank fees and accept a strict paper process.

The decision tree adds two questions buyers often skip. Will your bank block cash as margin? Will the factory accept an LC at your size? Many manufacturers refuse LCs below roughly USD 30,000.00 to USD 70,000.00 (indicative, Chinaimportal).

If you land on T/T, protect it in other ways. Always verify the company first with our supplier verification checklist. Then tie the 70.00% balance to a passed pre-shipment inspection report. The full comparison of wire, fintech and platform payments sits in our guide on how to pay a Chinese supplier.

How a letter of credit works, step by step (UCP 600)

Almost every trade LC is issued under UCP 600, the International Chamber of Commerce (ICC) rules for documentary credits. Two ideas sit at their core. First, banks deal with documents, not goods (Article 5). Second, the credit is separate from your sales contract, so the bank checks the credit, not the contract.

Under UCP 600, a credit is irrevocable by definition. Once issued, your bank cannot cancel it without the supplier's agreement. That bank promise is why a factory will start production without any deposit.

1. Agree LC terms in the contract

The contract says "payment by irrevocable sight LC" and names the shipment date, ports and documents. Agree the document list before you apply.

2. Apply to your bank

The bank checks your credit line. Without one, many banks ask for a cash margin, up to the full LC value.

3. Issuance and advising

Your bank (the issuing bank) sends the credit by SWIFT, usually as an MT700 message. A bank in China (the advising bank) checks it is authentic and passes it to the factory.

4. Supplier checks, produces and ships

If a clause cannot be met, the factory asks for an amendment before production. It then ships and collects the documents.

5. Presentation, examination and payment

Your bank examines the documents. If they comply, it pays and debits you. If not, it may ask you for a waiver.

6. You collect the goods

Your bank releases the original documents, and the bill of lading lets you take delivery.

The deadlines that decide payment: 21 days and five banking days

Timing errors are the top cause of refusal, says the ICC's 2022 briefing on discrepancy rates. Three dates control everything: latest shipment, presentation period and expiry.

If the credit is silent on the presentation period, the default applies. Documents with an original transport document must be presented within 21 calendar days after shipment, and never after expiry (ICC Academy). The bank then has a maximum of five banking days after presentation to decide (UCP 600, Article 14).

Here is what this means in practice: if the expiry falls 10 days after the latest shipment date, the supplier has 10 days, not 21. Many refusals start here. Leave at least 21 days between the two dates.

In this example, the LC is issued on 06/11/2026, with latest shipment 15/12/2026 and expiry 05/01/2027. Goods go on board on 10/12/2026, so the 21-day window closes on 31/12/2026.

Documents are presented on 17/12/2026. With a Monday to Friday week, the fifth banking day is 24/12/2026. Any refusal must come by then, in one notice listing all discrepancies. A late bank loses the right to refuse.

📌 Note: banking days follow the examining bank's calendar. Weekends and public holidays in the UAE, China or Europe shift the dates in this example. Check them with your bank's trade desk.

Fees and rules change often. Get the TRG Importer Brief: one short email a week with changes that affect importers.

Writing the LC application: the MT700 fields that matter

Your application becomes an MT700, the SWIFT message that carries the credit. Every box on the bank form maps to a numbered field, so you can read the draft before issuance.

Seven fields cause most trouble: 31D (expiry), 32B (amount), 44C (latest shipment), 45A (goods), 46A (documents), 47A (additional conditions) and 48 (presentation period). In 47A, the ICC Academy warns, "the devil is often hiding".

Keep the goods description in 45A short, because it must reappear on the invoice. Avoid 47A conditions the supplier cannot control, such as an arrival date. A credit should depend on documents, not events.

Use "about" only on purpose. UCP 600 reads "about" or "approximately" before an amount or quantity as a 10.00% tolerance either way (Article 30). That helps with bulk goods, but it also lets the supplier draw up to 10.00% more.

Finally, state who pays which fees. A common split is "all bank charges outside the issuing country are for the beneficiary's account".

The documents the bank checks

The bank checks only what field 46A asks for, and no document may conflict with another. Our guide to import documents explained line by line covers each paper. Here is what changes under an LC.

The commercial invoice is the strictest document. Under UCP 600 (Article 18), the goods description on it must correspond to the credit. Other documents may describe the goods in general terms. The invoice must be issued by the supplier, made out to you and in the credit's currency.

The bill of lading must show an on-board date no later than field 44C, with ports matching the credit. If a full set of originals is required, all must be presented.

An LC does not guarantee quality on its own. To link payment to quality, require an inspection certificate issued by a named third-party company. Name the inspector and the standard, and state that the certificate must say "passed". Our pre-shipment inspection guide explains what such a report covers.

Every extra document is one more chance of a discrepancy, so ask only for what customs needs. Our Incoterms guide for China imports shows who must insure under each term.

The most common LC discrepancies and what they cost

A discrepancy is any point where a document fails the credit, UCP 600 or another document. The ICC estimated in its 2022 briefing that 65.00% to 80.00% of presentations are refused on first presentation. A refusal does not mean the supplier will not be paid. It means delay, fees and a decision for you.

When documents are discrepant, your bank may ask whether you accept them anyway. This is a waiver (UCP 600, Article 16(b)). Most buyers accept small errors, and the bank then deducts a discrepancy fee from the supplier's payment.

1. Late shipment, late presentation or expiry

The bill of lading is dated after field 44C, or documents arrive too late. Fix it with a realistic date and an amendment before loading.

2. Data that conflicts between documents

Weights, cartons or names differ between invoice, packing list and bill of lading. Send the supplier a correct sample set.

3. Goods description not matching the credit

The invoice says "LED panel 60x60" while the credit says "LED ceiling panels". Copy the 45A text into the invoice template exactly.

4. Wrong ports, missing on-board notation or missing documents

A bill of lading names Shanghai when the credit says Ningbo, or a certificate is missing.

What a discrepancy costs. FAB in the UAE lists a discrepancy fee of USD 150.00 per discrepant set under import LCs. HSBC in Poland lists EUR 50.00 per presentation, and Virgin Money in the UK lists GBP 50.00 minimum per set. In each tariff, the fee is deducted from the beneficiary's payment, unless the credit says otherwise.

The bigger cost is time. Each refusal or waiver request adds days, and port storage with them. If you need the cargo, a waiver is often cheaper than refusal.

What banks charge: three published LC tariffs

LC pricing is often "on request", but some banks publish standard tariffs. We checked three on 01/11/2026: one in the UAE, one in the UK and one in the European Union. Your negotiated rate may be lower, especially with a credit line and steady volume.

FAB and Virgin Money charge a percentage tied to time, so a longer validity costs more. HSBC Poland adds fixed fees per step, which weigh more on small LCs.

On a three-month sight LC, both percentage tariffs land near half of 1.00%. FAB's issuance commission comes to 0.48% of a USD 60,000.00 credit. Virgin Money's issuance plus payment commission totals about 0.48%. Fixed fees then come on top.

The supplier pays its own side in China, such as advising and checking, and those costs end up in its price. For comparison, FAB prices export confirmations on risk, with a minimum of AED 1,000.00.

Worked example: LC vs T/T on a USD 60,000.00 order

Example: a Dubai trading company orders USD 60,000.00 of LED panels, FOB Ningbo, from a factory it has never used. It compares a three-month sight LC with a standard 30/70 T/T. LC fees use the FAB tariff. Wires use the Emirates NBD business tariff (Prime, online). All conversions use the official peg of AED 3.6725 per USD.

The LC costs USD 520.81 more, or 0.87% of the order. What does that buy? Under T/T, the USD 18,000.00 deposit leaves before production with no security. The extra LC cost equals 2.89% of that deposit.

So the rule of thumb is simple. If you think there is more than about a 3.00% chance of losing the deposit, the LC pays for itself. With a new, unverified factory, that is a fair worry. With a supplier you have paid ten times, it rarely is.

Three things can change this result. First, FAB adds a 0.25% commission in lieu of exchange when you settle in the same currency as the documents. Paying from a USD account would add AED 550.88. Second, a cash margin blocks your money for the life of the credit, which has its own cost.

Third, the supplier may raise its price to cover its own bank fees. Ask for the LC price and the T/T price in writing, side by side. The chart below shows why the risk profile matters more than the fee gap.

Under T/T, exposure starts at USD 18,000.00 on day one. It jumps to USD 60,000.00 when the balance leaves against a bill of lading copy. Under the LC, nothing leaves until the bank holds compliant documents. Quality risk is the same in both cases, unless the credit requires an inspection certificate.

Types of letter of credit for China imports

Four variations come up in China trade. Decide before you apply.

1. Sight LC

Payment follows compliant presentation. Chinese suppliers prefer it, because they are paid in days.

2. Usance (deferred payment) LC

Payment falls due later, for example 90 days after shipment, so you may sell before you pay. FAB and Virgin Money both charge 0.15% per month for the deferred period.

3. Confirmed LC

A second bank adds its own promise to pay. Suppliers ask for it when they doubt the issuing bank. The fee is normally theirs, but some ask buyers to pay it.

4. Transferable LC

A trading company can pass the credit to the real factory. The credit must say "transferable", and it can be transferred only once.

Letters of credit by region: MENA, Europe/UK, USA

MENA. Gulf banks publish full trade tariffs, as the FAB example shows. In the UAE, check the bank's licence on the Central Bank of the UAE site. Egypt has its own import-file rules; see our guide to paying a Chinese supplier from Egypt.

Europe and UK. UK and EU banks often publish tariffs but negotiate with trading clients. The HSBC Poland tariff is a useful EU benchmark. Our Europe payments guide covers wires and fintechs for EU and UK importers.

USA. US banks rarely publish LC prices. The International Trade Administration calls LCs "labor-intensive and relatively expensive" and advises asking your bank. See our US importer payments guide for wire options.

What goes wrong in practice (and how to fix it)

Most LC problems are written into the credit on day one. These five recur in China trade.

1. The supplier refuses the LC after the deal. Raise LC terms at the quotation stage.

2. Shipment date too tight. Production slips and the bill of lading is late. Amend before loading.

3. Expiry too close to shipment. The supplier loses part of the 21-day window. Set expiry at least 21 days after the latest shipment date.

4. Unworkable conditions in field 47A. A clause the supplier cannot document becomes a discrepancy. Every condition needs a document that proves it.

5. Goods arrive before documents. On short routes the ship can beat the papers, and storage starts. Decide on waivers quickly.

If the bank notifies discrepancies, read the list the same day. If the goods passed inspection, a waiver is usually the practical choice. If they failed, refusal keeps your money.

📌 Note: an LC does not protect you from fraud with forged documents or a fake inspection report. Banks check documents on their face. Name a known inspection company and confirm reports directly with it.

Checklist before you apply for an LC

• Supplier agrees in writing to an irrevocable sight LC under UCP 600

• Two prices compared LC price and T/T price on the same order

• Credit line confirmed or cash margin known

• Latest shipment date realistic with production slack

• Expiry 21+ days after shipment so the full window stays open

• Short goods description copied exactly into the invoice template

• Document list minimal only what customs and quality need

• Inspection certificate from a named company, stating "passed"

• Charges split stated fees outside the issuing country for the beneficiary

• Draft MT700 reviewed by you and the supplier before issuance

For the full order sequence, from product research to customs, see our step-by-step guide on how to import from China.

Related guides

Glossary

Applicant: the buyer who asks its bank to issue the credit.

Beneficiary: the supplier who will be paid under the credit.

Issuing bank: the buyer's bank, which gives the promise to pay.

Advising bank: the bank in the supplier's country that passes the credit on and checks it is authentic.

Confirming bank: a second bank that adds its own promise to pay.

UCP 600: the ICC Uniform Customs and Practice for Documentary Credits, the rules most LCs follow.

MT700: the SWIFT message used to issue a documentary credit.

Discrepancy: a point where documents do not comply with the credit or with each other.

Waiver: the buyer's acceptance of discrepant documents, so the bank can pay.

FAQ

This article is for information only and is not legal, tax or financial advice. Bank tariffs change and negotiated rates differ; confirm fees, credit lines and LC wording with your bank's trade finance desk before you apply.