An LC for textiles is a bank promise to pay the Indian supplier once it presents documents that match the credit's terms exactly. Your bank issues it, the supplier's bank advises it, and money moves against paperwork, not against the goods themselves.
That last point is the one buyers miss. A letter of credit proves the documents were right. It does not prove the fabric or garments were. To protect quality you must put the right documents inside the credit.
How the credit works step by step
The sequence is the same for most textile orders:
- You and the supplier agree the order and the payment term, and you ask your bank to open the credit in the supplier's favour.
- The supplier's bank advises the credit and may add its confirmation, which gives the supplier a second bank's promise.
- The supplier ships and presents the documents the credit lists, within the time the credit allows.
- The banks check the documents against the credit. If they comply, the issuing bank pays, and you collect the documents to clear the goods.
Why discrepancies cause delays
Banks check documents strictly. A name spelt differently on the invoice and the bill of lading, a wrong date or a missing certificate counts as a discrepancy, and the bank may refuse to pay until it is fixed. Under the ICC rules most credits follow, UCP 600, documents are normally due for presentation within 21 calendar days after shipment, and always within the credit's expiry date.
Discrepancy delays are the main cost of a letter of credit for a textile order, in time and in bank fees. Both sides should read the draft credit line by line before it is issued, not after.
Put quality evidence inside the credit
The credit can require documents beyond the invoice and the transport document. For textiles, useful additions are an inspection certificate from a named inspector, a test report for the points that matter, and a certificate of origin. If the credit requires a pass inspection report, the supplier cannot be paid until the goods have passed.
Be precise. A vague requirement is hard to satisfy, and a requirement the factory cannot meet leaves everyone stuck. Agree the inspection and the wording of its certificate with the supplier before the credit is drafted. See final random inspection for textile orders.
When an LC suits and when it does not
An LC suits a first order with a new supplier, a large value, or a supplier who wants payment certainty. It costs bank fees and adds paperwork, so small repeat orders with a trusted mill often use other terms. Our notes on typical payment terms for textile orders and the safest payment terms compare the options.
Confirm the details with your bank, because rules on fees, confirmation and sanctions screening differ between banks and countries.
Also remember that a letter of credit covers the factory's risk as well as yours. A supplier who is paid on presentation of documents can start buying yarn and fabric with confidence, which can help a first order get going. Ask the supplier which type it prefers, for example sight or usance, and whether it wants the credit confirmed.
Next step
Choosing payment terms is part of managing supplier risk. We find and audit manufacturers, check samples and documents, and supervise production and loading, so the documents under your credit are backed by real checks. Book a free sourcing review to talk through the terms for your order.