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When a Turkish supplier and an African importer transact for the first time, neither side fully knows the other, and both carry real risk: the seller fears shipping without being paid, the buyer fears paying without receiving conforming goods. The letter of credit exists to resolve exactly this standoff. It is the workhorse of first-time Türkiye-Africa deals, and understanding it well is one of the highest-leverage skills in cross-border trade. This guide explains how it works, where it fails, and when to graduate to lighter instruments.
What a letter of credit actually is
A letter of credit (L/C) is a bank's conditional promise to pay. The buyer's bank undertakes to pay the seller once the seller presents a defined set of documents proving that shipment happened as agreed. Payment is triggered by compliant documents, not by the goods themselves, which is the single most important thing to grasp about the instrument.
The most common form in first-time trade is the L/C at sight, meaning the seller is paid as soon as compliant documents are presented and verified, rather than after a delay. Because a bank stands between the parties, the seller is protected against non-payment and the buyer is protected against a shipment that never leaves, which is why the instrument is favoured precisely when trust is thin.
The document set that triggers payment
A typical L/C calls for a commercial invoice, packing list, bill of lading, certificate of origin and, for most Africa-bound goods, a pre-shipment inspection report (SGS, Intertek, COTECNA or BIVAC depending on destination). For Nigeria the L/C often ties into the Form M already opened by the buyer, and SONCAP conformity where the product is in scope.
Payment under a letter of credit is triggered by compliant documents, not by the goods, so a single mismatched line can hold up money even when the shipment is perfect.
Every one of these documents must match the terms of the credit exactly: names, quantities, descriptions, dates and port references. The bank checks paper against paper. This is a strength, because it is objective, and a trap, because trivial inconsistencies can stall payment.
Where it goes wrong: discrepancies
The most common failure in L/C trade is the discrepancy: a document that does not precisely match the credit's wording. A description that reads slightly differently on the invoice than in the L/C, a packing list weight that disagrees with the bill of lading, a shipment presented after the latest shipment date, or a missing inspection clause can all trigger a discrepancy and delay payment.
The defence is preparation. Both sides should read the draft L/C carefully before shipment, paying special attention to the inspection, origin and packing-list clauses, and confirm that every required document can be produced exactly as worded. Fixing an unworkable clause before the goods move is cheap; fixing a discrepancy after presentation is slow and can sour the relationship.
Alternatives: cash against documents and advance payment
The L/C is not the only structure. A widely used alternative is 30 percent advance plus 70 percent cash against documents (CAD), where the buyer pays the balance to collect the shipping documents needed to clear the goods. It is lighter and cheaper than an L/C but offers less bank-backed protection, so it suits parties with some established trust.
Full advance payment protects the seller completely but is often uncompetitive and asks a lot of a buyer dealing with an unfamiliar supplier. In practice, the instrument should match the stage of the relationship: heavier protection early, lighter as a track record forms. Working through a marketplace with a verified counterparty pool lowers the underlying risk and makes these conversations easier from the start.
When to move to open account
As several shipments complete successfully and trust deepens, terms naturally loosen. Regular monthly lines may move to CAD or partial open account, where goods ship against an agreed payment term without a bank guarantee. This reduces cost and friction for both sides and rewards a reliable relationship.
The progression is the point: start with the letter of credit precisely because it protects strangers, then let the instrument lighten as strangers become partners. For importers, the practical first move is to open a request on a verified platform like Tafric, agree an L/C at sight on the first order, and treat flawless documentation as the foundation for the easier terms that follow.
Frequently asked questions
What is a letter of credit at sight?
It is a bank's conditional promise to pay the seller as soon as compliant shipping documents are presented and verified, rather than after a delay. The buyer's bank pays against documents that prove shipment happened as agreed, protecting the seller from non-payment and the buyer from a shipment that never leaves.
Why do letters of credit get delayed?
Almost always because of a discrepancy, a document that does not exactly match the credit's wording. A description that differs from the L/C, a packing-list weight that disagrees with the bill of lading, a late shipment date or a missing inspection clause can all stall payment. Reading the draft L/C carefully before shipment is the main defence.
What is the difference between an L/C and cash against documents?
An L/C is backed by a bank's guarantee and gives strong protection to both sides, at higher cost. Cash against documents (often 30 percent advance plus 70 percent CAD) is lighter and cheaper but relies more on trust, since the buyer pays to collect the documents needed to clear the goods. Choose based on how established the relationship is.
When should trade move to open account?
After several successful shipments build a track record. Terms then loosen from L/C to CAD or partial open account, where goods ship against an agreed term without a bank guarantee, cutting cost and friction. Starting with a verified counterparty lowers risk and makes this progression smoother.