Letters of Credit (LCs) and Documentary Collections are the two main trade finance instruments used by UAE importers and exporters. Here is how they work and when to use each.
Letter of Credit (LC): How It Works in UAE
A Letter of Credit is a bank guarantee from the buyer’s bank (the “Issuing Bank”) to the seller that payment will be made when the seller presents the required shipping documents (bill of lading, packing list, commercial invoice, certificate of origin, etc.). UAE LC process: Applicant (UAE importer) requests LC from their UAE bank → UAE bank issues LC to seller’s bank → Seller ships goods and submits documents to their bank → Documents checked against LC terms → Payment released to seller. UAE LCs are typically issued under UCP 600 (Uniform Customs and Practice for Documentary Credits, ICC Publication 600) — the international standard.
Types of UAE Letters of Credit
Sight LC: Payment released immediately when conforming documents are presented. Usance LC (Deferred Payment): Payment released 30, 60, 90, or 180 days after document presentation — gives buyer time to sell goods before paying. Most common for UAE import trade. Standby LC (SBLC): Not a payment instrument but a performance guarantee — pays out only if the applicant defaults. Used in construction contracts and project bonds. Revolving LC: Renews automatically for multiple shipments — used for ongoing supply relationships.
UAE LC Costs
LC issuance fee: 0.1–0.25% of LC value per quarter (minimum AED 250–500). LC advising fee (at the seller’s bank): USD 50–200 flat. Document examination fee: AED 250–500 per presentation. LC amendment fee: AED 250–500 per amendment. Emirates NBD, FAB, and ADCB all have dedicated trade finance desks for UAE businesses with regular LC requirements.