What Is a Letter of Credit (Akreditif)?

In cross-border trade the hardest question is rarely about the product itself. The seller asks whether payment will actually arrive after the goods leave the port; the buyer asks whether conforming goods will actually arrive after the money leaves the account. A letter of credit is the instrument that answers both questions at the same time, through the banking system rather than through trust alone. This guide explains what a letter of credit is, who the parties are and how the mechanism works in practice.

What Is a Letter of Credit?

A letter of credit is a written undertaking issued by the buyer's bank in favour of the seller, promising payment provided that a specified set of documents is presented in full compliance with the credit's terms. It is also called a documentary credit, and in Turkish trade practice it is known as akreditif. Crucially, the credit is independent of the underlying sales contract: it stands on its own as a bank obligation.

The defining principle is that banks deal in documents, not in goods. No bank inspects the contents of the container. What is examined is whether the bill of lading, commercial invoice, packing list, insurance policy and certificate of origin match the wording of the credit. If the documents comply, payment follows. If a document is missing or contradicts the credit, a discrepancy is raised and payment is suspended until it is resolved or waived.

This document-driven logic is what makes the instrument powerful and, at the same time, unforgiving. Properly structured, it converts a commercial risk into a bank obligation. Carelessly handled, it turns a completed shipment into a stalled collection.

The Parties Involved

A documentary credit brings together at least four parties with distinct roles:

• Applicant: the importer who asks its bank to issue the credit and who largely dictates the conditions written into it.
• Issuing bank: the buyer's bank, which assumes the payment undertaking.
• Beneficiary: the exporter, who prepares and presents the documents and receives payment.
• Advising bank: usually a bank in the exporter's country, which authenticates the credit and passes it on to the beneficiary.

Depending on the structure, a confirming bank, a negotiating bank or a reimbursing bank may also appear. Confirmation adds a second, independent undertaking to that of the issuing bank, which matters a great deal when the issuing bank sits in a market with elevated country or transfer risk.

How the Process Works

A typical transaction follows a predictable sequence:

1. Buyer and seller agree in the contract or proforma invoice that payment will be made under a letter of credit.
2. The buyer applies to its bank, which assesses the buyer's credit line or collateral before issuing.
3. The issuing bank transmits the credit by SWIFT to a bank in the exporter's country.
4. The advising bank notifies the exporter, who must read the text line by line and request an amendment before shipping if any condition cannot be met.
5. The exporter manufactures, prepares and ships the goods before the latest shipment date.
6. Documents are compiled and presented within the presentation period.
7. The banks examine the documents; if they comply, payment is made at sight or at maturity depending on the type of credit.
8. Documents are released to the buyer, who uses them to clear the goods through customs.

Our step-by-step article on how to export with a letter of credit walks through the same process document by document.

Why Exporters Use It

For a supplier selling into an unfamiliar market or dealing with a first-time counterparty, the practical benefit is that commercial risk moves from the buyer's balance sheet to a bank's undertaking. Payment no longer depends on the buyer's cash position or goodwill, but on compliant documents.

• Once documents comply, payment is largely outside the buyer's discretion.
• The buyer is protected too: no shipment, no documents, no payment.
• Under usance credits the exporter can discount the accepted draft and convert the receivable into cash earlier.
• Shipment dates, partial shipment and transhipment rules are written into the text, which removes ambiguity between the parties.

To see how this compares with other structures, read our overview of payment methods in international trade.

Where Transactions Go Wrong

Most delays have nothing to do with product quality and everything to do with document discipline.

Discrepancies

A goods description on the invoice that does not mirror the credit, incorrect consignee details on the bill of lading, or weights on the packing list that contradict other documents are the classic causes of rejection.

Deadline management

A credit has three separate deadlines: the latest shipment date, the presentation period and the expiry date. Production planning that ignores any one of them can produce a shipment that sails on time and still misses presentation.

Unworkable conditions

Conditions that only the buyer can satisfy, such as inspection certificates countersigned by the applicant, place the exporter in a dependent position. These must be identified the moment the credit arrives and corrected by amendment.

Coordinating the Operation

A letter of credit is not a standalone banking product; it is the point where the contract, the production schedule, the logistics plan and the document flow have to share one calendar. Yurt Bereket Global structures that operation as a whole, from matching the right manufacturer and buyer to selecting the payment model, planning the shipment and preparing a document set that mirrors the credit. Yurt Bereket Global is not a bank, a law firm or an independent financial adviser: issuance, confirmation and legal interpretation remain with banks and legal professionals, while we coordinate the commercial operation around them.

You can read more about our approach on the secure international trade page and about our role in credit-based transactions under letter of credit and secure payment.