What is Letter of Credit (L/C)?
A letter of credit, or L/C, is a promise by the buyer's bank to pay the seller a stated amount, provided the seller presents the documents the L/C asks for within the time allowed. It shifts the payment risk from the buyer to the bank. L/Cs are common in goods trade, where documents such as shipping bills and bills of lading prove delivery. They are much less common for services, where proof of delivery is harder to standardise.
Why it matters for exporters
The EDF asks about the payment route in field 1.12, mode of realisation, with three options: L/C, BG (bank guarantee) and Others. If an L/C backs your export, tick L/C, and use field 1.19 to name the AD bank handling the L/C or BG. For most service exporters, who are paid by direct transfer or in advance, the right choice is "Others".
If you do work under an L/C, the documents it lists become your checklist, and missing a single document or deadline can delay payment. Your AD bank's trade-finance team typically handles L/C documents, so involve them early. The explainer on mode of realisation in the EDF shows how to fill the field for each case.
Example
Granite Engineering Services Pvt Ltd wins a ₹45,00,000 design contract from a buyer in Oman, payable under an L/C opened by the buyer's bank and advised through Granite's AD bank. When Granite raises the invoice in February 2027, it ticks L/C in field 1.12, names its AD bank in field 1.19 and files the EDF by 30 March 2027.
Common confusion
An L/C is a payment mechanism, while a bank guarantee is a security that pays only if something goes wrong. Both appear in the same EDF field, but they work very differently.