AI agents for business finance: what they can and can't do
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The short answer
A letter of credit from a Nigerian bank protects a US seller only if the documents comply exactly and the issuing bank pays when it should. A confirmed LC, where a US or other strong bank adds its own commitment and pays you before it is reimbursed, removes most of the issuing-bank and country risk. Discrepancies in your documents remain your risk either way.
What the LC promises, and what it does not
A letter of credit is a bank's promise to pay you, on behalf of the buyer, when you present documents that match its terms. The US International Trade Administration's Trade Finance Guide stresses that the bank's obligation is "solely conditioned upon the compliance of the exporter's documents". The bank is not checking the goods; it is checking paper. LCs are irrevocable unless the credit says otherwise, and they are commonly issued subject to the ICC's UCP 600 rules (the ICC publishes eUCP 2.1 as a digital supplement to UCP 600).
For a US seller dealing with a Nigerian buyer, that promise is valuable, but it leaves three risks you should understand before relying on it.
Risk 1: discrepancies in your documents
The Trade Finance Guide warns that LCs "have opportunities for discrepancies, which may negate payment". If the invoice description differs from the credit, the bill of lading is dated after the latest shipment date, or the insurance document is in the wrong amount, the bank may refuse the documents. The buyer can then waive the discrepancy, or not.
- Read the draft LC before the buyer's bank issues it, and ask for changes to anything you cannot meet.
- Match names, addresses and descriptions exactly, including spelling.
- Check dates: latest shipment date, expiry date and presentation period.
- Check that every document required is one you can actually obtain, such as a certificate signed by a specific body.
- Consider using a specialist to prepare documents; the guide recommends this where the stakes justify it.
Risk 2: the issuing bank
An unconfirmed LC is only as good as the bank that issued it and its ability to pay in dollars. Without confirmation, the guide says payment is made "only after the shipping documents are presented to the issuing bank". If that bank delays, disputes or cannot obtain foreign exchange to settle, you wait. Nigerian buyers' import payments are processed against a Form M; Sterling Bank's FAQ says each Form M is marked valid or not valid for foreign exchange, so ask which applies to your credit.
Risk 3: country and transfer risk
The guide lists political and commercial risks among the reasons sellers face non-payment. Even a sound Nigerian bank can be slowed by foreign exchange shortages or regulatory changes. That risk is outside your control and outside the buyer's.
How confirmation changes the picture
In a confirmed LC, a second bank adds its own payment commitment. The guide says the confirming bank "will pay the exporter prior to receiving reimbursement by the issuing bank". It recommends confirmation when the exporter doubts the foreign bank's credit standing, the market is high-risk, or the buyer wants extended terms. Confirmation can also make it easier to get paid early by discounting the credit.
| Unconfirmed LC | Confirmed LC | |
|---|---|---|
| Who pays you | Nigerian issuing bank | Confirming bank, then it claims from the issuer |
| Issuing bank risk | Yours | Mostly the confirming bank's |
| FX/transfer delay | Yours | Mostly the confirming bank's |
| Document discrepancies | Yours | Still yours |
| Cost | Lower | Confirmation fee added |
Confirmation is not free, and some banks will decline to confirm credits from particular issuers. Ask your US bank early, before the buyer applies, which Nigerian banks it will confirm for and what it will charge. Agree in the sales contract who pays the confirmation fee.
Worked example (illustration only)
Example: a $50,000 sale under a confirmed LC. You ship on time and present compliant documents to the confirming bank in the US. It pays you $50,000 less its fees, then claims from the Lagos issuing bank. If the issuing bank pays late, that delay is the confirming bank's problem. If instead your bill of lading was dated two days after the latest shipment date, the confirming bank can refuse, and you are back to relying on the buyer's willingness to waive.
Alternatives to compare
For smaller or repeat orders, an LC may cost more than it saves. Documentary collections are cheaper but give no bank guarantee, and export credit insurance can cover open-account sales. Our guide to payment terms for Nigerian buyers compares them. From the buyer's side, the Nigeria library explains letters of credit versus open account.
Questions to ask your US bank
- Will you advise and confirm credits from this Nigerian bank, and at what fee?
- How do you check documents, and how long do you take?
- Can you discount a confirmed credit if I want early payment?
- Do you accept electronic presentation under eUCP?
Where Pryme fits
Pryme does not issue or confirm letters of credit. Where it helps is around the deal: a Pryme Business Account opened from the US holds USD and NGN with local details for each, invoicing lets you send pro forma and final invoices that match the credit, and multicurrency balances let you receive deposits in the currency the buyer pays.
Questions people ask
Is a letter of credit from a Nigerian bank safe?
It protects you if your documents comply and the bank pays. A confirmed LC moves most of the issuing-bank and country risk to the confirming bank.
What is a confirmed letter of credit?
One where a second bank, usually in the seller's country, adds its own promise to pay and pays the seller before being reimbursed by the issuing bank.
What happens if my LC documents have a discrepancy?
The bank can refuse to pay. The buyer may waive the discrepancy, but is not obliged to.
Who pays for LC confirmation?
It is negotiated. Agree it in the sales contract before the buyer applies for the credit.
Sources
- US International Trade Administration: Trade Finance Guide (2022 edition) · accessed Oct 2026
- ICC: eUCP Version 2.1, supplement to UCP 600 (29 Jun 2023) · accessed Oct 2026
- Sterling Bank: Form M frequently asked questions (modified 13 Mar 2022) · accessed Oct 2026
This article is general information, not financial, legal or tax advice. Products described are provided under the terms on this site and are subject to regulation and eligibility.