What payment guarantee is commonly used in international trade?

• A. Bank Guarantee
• B. Payment Voucher
• C. Letter of Credit (L/C)
• D. Bill of Exchange

Answer: (C)

In international trade, a reliable guarantee of payment is offered by a bank-backed instrument that promises to pay the seller if the required documents prove the terms of the contract were met. A letter of credit provides exactly this: the issuing bank commits to paying the seller once the seller presents stipulated documents (like a bill of lading, commercial invoice, and insurance) that conform to the agreement. Because the bank’s obligation is independent of the underlying contract, the seller gains strong assurance of payment, while the buyer gains assurance that payment is released only when the correct documents are presented. This combination of payment certainty and documentary control is what makes the letter of credit the most commonly used payment guarantee in international trade. Other options either serve different purposes (for example, a bank guarantee is typically a performance or payment guarantee under a contract, not a transaction-specific payment promise) or are not standard trade instruments for guaranteeing payment (a bill of exchange is a negotiation instrument, and a payment voucher is not a formal trade guarantee).