What Is a Letter of Credit in Nigerian Trade?
12 October 2026 - Naira BriefingA letter of credit (LC) is a bank’s promise to pay a supplier once agreed shipping documents are presented. For Nigerian importers dealing with a new overseas supplier, it replaces trust with a bank guarantee — at a cost.
How a letter of credit works
Your bank issues the LC in favour of the supplier. The supplier ships the goods and presents documents (bill of lading, invoice, certificates). If the documents match the LC exactly, the bank pays; if not, payment is held. It sits alongside your Form M in the import process.
When to use one
- A new or high-value supplier you can’t yet trust with an advance payment.
- Large orders where the risk of non-delivery is too big to carry.
- When a supplier insists on security before manufacturing.
The trade-off
LCs cost fees and tie up credit, and strict document rules mean small errors delay payment. For smaller or trusted orders, a direct supplier payment is simpler. Weigh the security against the cost, and factor the USD to Naira rate into your landed cost either way.