Flipkart Big Shopping Utsav 2025: Inventory & Delivery Planning

Published on September 25, 2025

• 8 min read

The Indian e-commerce industry is growing each year. In the 2024 festive sales period, online e-commerce marketplaces experienced a dramatic surge in both purchases and visitors. Several e-commerce platforms saw increased demand, mainly from tier 2 and 3 cities.

Flipkart is one of the top e-commerce platforms, which gets millions of customers visiting the platform every day. The traffic rises drastically during sale events such as the Flipkart Big Shopping Utsav. One of Flipkart’s flagship events, the Big Billion Day sale, saw 7.2 billion customer visits.

This huge number indicates the opportunity for sellers who wish to excel by selling products online. As the Flipkart Big Shopping Utsav approaches, consumers expect even earlier deals, quicker dispatches, and timely delivery across pin codes. Sellers must prepare in advance to maximise the sale’s potential.

In this guide, we will explain how sellers can plan their inventory and delivery to maximise profits and attract as many customers as possible during the Big Shopping Utsav by Flipkart.

Table Of Contents

Big Shopping Utsav Flipkart Date 2025
Why Is Having an Inventory Strategy for the Flipkart Big Shopping Utsav Sale Essential?
Inventory Strategy for Flipkart Big Shopping Utsav Sale
Flipkart Deals and Discounts: Preparing Pricing Strategy
Delivery Planning for Flipkart Big Shopping Utsav
Benefits of Using WareIQ Fulfilment for Your Flipkart Marketplace Orders During the Flipkart Big Shopping Utsav
Conclusion
FAQs

Big Shopping Utsav Flipkart Date 2025

According to reports, the Big Shopping Utsav by Flipkart is scheduled to begin on October 14, 2025. It is perfectly timed to meet the demand that rises during the Diwali sale. It is strategically placed between the Big Billion Day and the Diwali mega sale 2025.

Why Is Having an Inventory Strategy for the Flipkart Big Shopping Utsav Sale Essential?

The Flipkart Big Shopping Utsav Sale isn’t just another discount event; it comes with Flipkart Utsav offers and amazing Flipkart deals and discounts. This will attract millions of buyers and a grand opportunity for sellers. A well-planned inventory strategy for Flipkart Big Shopping Utsav Sale ensures you have the right products at the right locations, ready to ship quickly, helping you capture the surge in demand while keeping operations smooth.

Here is why inventory management is vital for sellers:

Spike in Demand: Festive sales see up to 3x–5x normal order volumes. Electronics, fashion, home appliances, and lifestyle goods are the primary categories.

Stockouts Cost Visibility: Once a product goes out of stock, it loses momentum in Flipkart’s algorithm.

Delivery Deadlines: Consumers are willing to pay for faster delivery, but only if sellers can promise (and fulfil) within Flipkart’s SLAs.

Returns & Reverse Logistics: Festive sales often experience return rates of 20–25% in categories such as fashion. Planning for this is as important as forward logistics.

Inventory Strategy for Flipkart Big Shopping Utsav Sale

Sellers cannot afford to leave room for mistakes by ignoring their inventory. To make profits during the Flipkart Big Shopping Utsav 2025, sellers have to follow a layered inventory strategy:

1. Forecast Demand with Precision

Review your Flipkart Big Billion Days 2024 performance and past festive sale trends. For example, electronics saw record orders, while fashion items had the highest return rates.

Flipkart provides real-time category insights, trending products, and sales velocity data, which it uses to refine forecasts. Additionally, since a majority of orders originate from tier 2 and 3 regions, ensure that regional preferences are reflected in your stock planning.

2. Categorise Products Based on Velocity

Some products sell out faster, while others can end up as dead stock. Hence, segmenting helps in planning stock placement.

Here is how sellers can categorise:

Fast-Moving SKUs: Mobile phones, electronics, and fashion basics. Keep these in Flipkart fulfilment centres (FBF).
Moderate SKUs: Home & kitchen, lifestyle products. Place some in Flipkart FCs and some in your warehouse.
Slow Movers/Niche SKUs: Premium or seasonal items. Manage through self-fulfilment to avoid storage cost build-up.

3. Leverage Fulfilment by Flipkart (FBF)

FBF helps with faster delivery, higher visibility in listings, and reduced return to origin RTOs. Sellers must send forecasted stock at least 3 weeks before the Big Shopping Utsav Flipkart date.

Prioritise your bestsellers. If space or budget is limited, ensure your high-demand SKUs are always in FBF.

4. Smart Inventory Placement

To ensure lightning-speed deliveries, sellers must place stock tactically closer to in-demand regions. For example, festive ethnic wear sells heavily in North India, while home appliances sell more quickly in South India. Place accordingly.

Also, keep 10–15% additional units in reserve for last-minute surges, especially in fashion, where exchanges are high.

5. Align Inventory with Flipkart Utsav Offers & Discounts

The demand for your products will depend heavily on your discounting strategy. Hence, inventory must align with planned offers. Products promoted under Flipkart Utsav offers will see higher order velocity, so it is best to allocate 2-3 times more stock than on everyday occasions.

Keep extra stock for SKUs under bank/EMI offers, as buyers often flock to these. Sellers can also bundle SKUs (such as headphones with mobile phones or bed sheets with pillows) and maintain a buffer inventory to meet combo demand.

6. Prepare for Returns & Reverse Logistics

It is a fact that during festive sales, returns also considerably rise by 20-25%. It is best to pre-allocate extra stock so that handling exchanges becomes easier.

Sellers must also expect 2–3% damage in high-volume categories. Keep replacements ready to avoid cancellation penalties. Hence, using WMS (Warehouse Management Systems) to track returned inventory quickly and restock sellable items will be helpful.

7. Maintain Cash Flow for Inventory Procurement

When planning to buy in high volumes, there is a need for upfront capital; hence, maintaining a stable cash flow is necessary. Besides, returns and refunds can considerably delay cash recovery.

To maintain liquidity, you can also collaborate with financing partners, such as Flipkart’s Seller Finance programmes or NBFC tie-ups.

8. Real-Time Monitoring During the Sale

The sale is going to be dynamic, and one mistake can prove to be a big drawback for sellers. Hence, sellers must ensure real-time monitoring of activities, especially when the sale is live.

Sellers can actively use Flipkart Seller Hub dashboards to track:

Inventory levels per SKU
Regional demand spikes
Stockouts and fulfilment delays

Based on the findings, adjustments must be made if a SKU is trending, rerouting stock to FCs or pushing price promotions to underperforming items during the Flipkart Big Shopping Utsav.

Flipkart Deals and Discounts: Preparing Pricing Strategy

Sellers must focus on providing Flipkart deals and discounts to get maximum visibility. Here is what sellers can do:

Bundle Offers: Combine complementary products to increase your cart value.
Bank Tie-Ups & EMI Schemes: Align with Flipkart’s partnerships for Axis, ICICI, and HDFC cards to provide Flipkart Utsav offers.
Smart Discounting: Offer deeper discounts on high-velocity SKUs while maintaining moderate margins for niche products.
Dynamic Adjustments: Monitor competitors and tweak pricing in real-time during the sale.

Delivery Planning for Flipkart Big Shopping Utsav

To ensure that Flipkart Big Shopping Days do not experience operational downtime, sellers must plan their deliveries meticulously as well.

Ensure 2-day or 3-day delivery promises are realistic by mapping stock to buyer locations.
Keep secondary couriers ready for high-volume days.
Pre-pack hot-selling SKUs to reduce handling time during peak orders.
Set up 24/7 support teams for escalations, as Flipkart prioritises sellers with strong service ratings.

Benefits of Using WareIQ Fulfilment for Your Flipkart Marketplace Orders During the Flipkart Big Shopping Utsav

Seamlessly integrate your Flipkart store and other marketplaces with WareIQ’s fulfilment platform for hassle-free operations.
Boost Flipkart order fulfilment speed by placing your inventory closer to customers through WareIQ’s strategically located fulfilment centres (FCs).
Enable multi-channel sales by making inventory stored in WareIQ’s FCs instantly available across Flipkart and other e-commerce platforms.
Accelerate Flipkart’s sales growth with WareIQ’s lightning-fast delivery network and reliable logistics support.
Reduce losses with RTO protection and seamless returns management, backed by WareIQ’s advanced fulfilment system.

Conclusion

The Flipkart Big Shopping Utsav, starting October 14, 2025, is much more than simply a random sale that sellers must prepare for well in advance. As millions of shoppers prepare for the exciting deals, the opportunity is massive, and so are the challenges. Concerns such as stockouts, delivery delays, and poor handling of returns can cause chaos and damage that is often irreparable.

It is therefore necessary for the seller to devise robust inventory management strategies for the sale to maximise the efficiency of all operations and streamline them so that surging demand can be fulfilled with speed, accuracy, and service quality while maintaining profit margins.

The Big Shopping Utsav on Flipkart is not about selling a huge volume; it is all about building customer trust, brand recall, and sustainable growth. With the right approach, this festive season can become the turning point that elevates your business to the next level.

Also check – Flipkart Diwali Sale 2025: Inventory Strategies to Manage High Demand and Improve Fulfillment

FAQs

How can sellers prepare inventory for Flipkart Big Shopping Utsav?

Sellers should forecast demand, place fast-moving SKUs in Flipkart Fulfilment Centres (FBF), balance self-fulfilment for niche products, and maintain buffer stock for returns.

Are returns higher during Flipkart Utsav offers?

Yes, especially in fashion and lifestyle categories where return rates can touch 20–25%. Sellers should plan for reverse logistics and keep a buffer stock for exchanges.

How can sellers maximise profits during the Flipkart Big Shopping Utsav 2025?

By aligning discounts with Flipkart deals and bank offers, stocking high-demand SKUs in FBF, managing returns efficiently, and using analytics to track demand in real time.

Why is inventory strategy important for sellers during Flipkart Big Shopping Days?

Without proper inventory planning, sellers risk stockouts, delayed deliveries, higher returns, and lower visibility in Flipkart search results, which directly impacts sales.

Supercharge your fulfilment with WareIQ now, contact our team.

Author

Mariyam Jameela

Mariyam Jameela works as a content writer at WareIQ. With a proven track record of working with renowned brands such as GO Digit, Urban Ladder, Juspay, Hong's Kitchen, and many more. She actively contributes to the creation of blog posts centered on eCommerce operations, fulfillment, and shipping, in addition to providing insights on various strategies and techniques tailored for eCommerce sellers

Read all of Mariyam Jameela's Posts

IMDG Code: What It Is and Why It’s Vital for Dangerous Goods

Did you know that about 98% of the global merchant fleet operates under the IMDG code? The full form of IMDG is International Maritime Dangerous Goods. It is the essential rulebook for international shipping, especially for handling hazardous cargo. The International Maritime Organisation (IMO) sets the guidelines under the IMDG code. In this article, today we will look into what IMDG codes are, the purpose of these codes, their structure and how they can help safeguard people, property and the environment. What is the IMDG Code? The IMDG (International Maritime Dangerous Goods) codes are rules and guidelines developed by the IMO to ensure that safe maritime transport can happen. These rules are for hazardous materials. It was initially adopted in 1965 as a recommendation. However, the IMDG code became mandatory in January 2004 per the International Convention for the Safety of Life at Sea (SOLAS). Purpose of the IMDG Code in International Trade. The IMDG code has been strategically curated to make safe sea transportation possible. Let us look at the prime objectives of the IMDG code: The IMDG code ensures the safety of people on board, such as crew members and port personnel. One of the primary objectives of the IMDG code is to ensure that the environmental risk associated with hazardous cargo during international trade can be mitigated. As the IMDG code is standard across all countries, it can help streamline the global movement of dangerous goods. Key Components of the IMDG Code The IMDG code is primarily segregated into two volumes. There is also an additional section named Supplement. The structure of the IMDG code contents is explained below: Volume 1: Volume 1 contains general provisions, training requirements, definitions, safety measures, protocol, classification, packing, and labelling guidelines. It also covers safety protocols for the safe loading and unloading of goods. Outlines confinement procedures concerning the documentation. Volume 2: It features the Dangerous Goods List (DGL), which contains details on individual substances. It also includes the UN number, shipping names, and packing instructions. It also contains Appendix A, which lists general shipping names for dangerous goods commonly shipped, and Appendix B, which has a glossary of terms. Supplement: The supplement offers additional guidance, emergency response, and procedures for ships carrying various goods (EmS Guide) along with the Medical First Aid Guide (MFAG). It also covers the guidelines for the safe use of pesticides on ships. Also check - Difference Between Packaging and Labelling Classification of Dangerous Goods As Per IMDG Codes The IMDG codes are categorised into nine different classes, depending on the inherent hazards they pose. 1. Explosives The substances that can cause explosive reactions. Other hazards due to explosives can lead to fire or the projection of fragments. Some examples include dynamite, ammunition, or fireworks. 2. Gases Compressed, liquefied or dissolved gases. It is subdivided into flammable gases, flammable inert gases, and toxic gases. The hazards that gases can cause include explosion, fire, and poisoning. Some examples include propane, chlorine, and oxygen. 3. Flammable Liquids These are liquids that are easily flammable and can lead to fires or explosions. The subdivision under classification includes flammable liquids with low flashpoints, flammable liquids with medium flashpoints, and flammable liquids with high flashpoints. Examples include gasoline, alcohol, and ethanol. 4. Flammable Solids Solid materials that can easily catch fire and are highly flammable are called flammable solids. The subdivisions under this classification include flammable solids susceptible to self-heating, substances that can ignite instantaneously and those that can emit flammable gases when they come into contact with water. Flammable solids can pose the risk of fire or explosion. Examples of flammable solids include magnesium, matches, or sulphur. 5. Oxidising Substances and Organic Peroxides Oxidising substances are materials with a high chance of releasing oxygen, which can cause or increase combustion. Two subdivisions are the oxidising substances and organic peroxide under this classification. These substances pose risks such as fires and exothermic reactions. Examples of such materials include hydrogen peroxide and sodium chloride. 6. Toxic and Infectious Substances These materials harm human health, either via inhalation, ingestion or contact with the skin. The two subdivisions under this classification include toxic substances and infectious substances. These substances pose risks such as infections and poisoning. Examples include cyanide, medical waste, and pesticides. 7. Radioactive Materials These are substances which emit ionising radiation. The subdivision under this classification includes radioactive material of limited activity and radioactive material of high activity. A few examples include medical isotopes and uranium. 8. Corrosive Substances. These are materials that cause severe damage to the living tissue. The subdivisions include substances corrosive to skin, substances corrosive to metals, and corrosive substances that attack other materials. It poses risks such as eye damage, burns, etc. A few examples include acids and alkalis. 9. Miscellaneous Dangerous Goods These are materials that can present different hazards which are not covered in the above classification. Some examples of this classification include lithium batteries or substances that give off heat. Significance of the IMDG Code The IMDG code has been structured to ensure that human life, goods on board and the environment are all safe while the transportation of dangerous goods occurs across countries. Here’s how the IMDG code is significant: When shipping firms comply with the IMDG codes by IMO, they can significantly mitigate the risk of accidents, protecting the crew members’ lives and safeguarding the vessels. IMDG codes' primary provision is to prevent marine pollution, ensuring that the transportation of dangerous materials and hazardous substances happens in a controlled way. Since compliance with the IMDG code is mandatory as per international law, failure to comply with it can also result in severe penalties and bans. Since regulations under the IMDG code are standardised, it can help streamline the international transportation of goods, facilitating global trade and commerce. Get Cargo Handling As Per the IMDG Code With WareIQ Shipping Solutions WareIQ’s smart shipping solution helps eCommerce brands minimise cost leakages caused by RTOs, fake delivery attempts in NDR, weight reconciliation issues, and more. Our solution also offers prompt support for handling urgent client escalations, ensuring smooth operations at all times. Our solution offers the following capabilities: Multi-carrier engine enabling fast deliveries across 24,000+ pin codes Control Tower & automated workflows to minimise NDR & RTOs Same/Next-day delivery courier options Seamless Integration with your WMS, ERPs and Storefronts Shipping Badges to display precise Estimated Delivery Dates (EDD) Custom-branded tracking pages and notifications to enhance customer experience Conclusion The IMDG code has a very important role in the safe and seamless transportation of hazardous goods via sea. The guidelines mentioned under the IMDG code are key to protecting human life, protecting vessels, preserving the marine environment and also facilitating global trade and commerce. Every business involved in the maritime transport of dangerous goods must comply with the IMDG code without fail, as it is more than just a legal obligation. It is a commitment towards safety for humans as well as the environment. FAQs About IMDG Code What are the results of not complying with the IMDG code?Compliance with the IMDG code is mandatory, and hence, non-compliance can lead to penalties, including monetary fines, detention of vessels and even, in some cases, bans from ports.How often is the IMDG code updated?IMDG code is updated biennially to incorporate advanced safety measures and also to address if there are any emerging risks.Where can I access the latest edition of the IMDG code?The IMDG code can be obtained from the IMO's official website. You can also get it from other authorised distributors.Who needs to be trained as per the IMDG code for transportation via sea?All the people involved with handling, packaging, documentation, and transporting hazardous substances by sea need to undergo appropriate training for handling such substances as per the IMDG code.

September 24, 2025

Different Types of Tariffs and Tariff Codes with Examples

Have you ever ordered something from overseas and noticed that taxes are higher than the actual cost of the product? Well, that is a tariff, an inclusive aspect of global trade. Talking about international trade, in 2024, global trade reached a record of $33 trillion. However, a study from the UN Trade and Development suggests that the worldwide trade growth by 2025 is a little uncertain. In these times, traders must understand tariffs and tariff codes to ensure smooth international trade growth. It is also essential, as tariffs highly impact product pricing, diplomatic relations, and supply chain strategies. This article will provide examples of the different types of tariffs and also explain different tariff codes. What Does Tariff Mean in Logistics? Tariffs are taxes imposed by the government on goods imported into the country and exported out of the country. Tariffs impact the cost of goods in the country, as when a product is imported, the overall cost increases due to different tariffs applicable, making it much more expensive for consumers. Besides impacting the product’s cost, tariffs also affect companies’ decisions about the final price of a product and the structure of their supply chain. 8 Different Types of Tariffs As there are many different types of tariffs, it is essential to understand every type so that traders can do international trade seamlessly. Here are eight types of tariffs in international trade that a trader must be aware of: 1. Ad Valorem Tariffs This type of tax is usually a percentage based on the value of the imported goods. It is mostly used for luxury goods, apparel, and electronics. Example: If the product value is $1000 and the ad valorem tariff is 15%, the duty to be paid is $150. 2. Specific Tariffs This type of tariff is usually fixed in nature, and it is based on the quantity, whether it is per kilogram or per unit. The product’s price does not matter, as it is based only on the quantity. It is mostly used for raw materials and agricultural products. Example: If the specific tariff on coffee beans is $2 per kg, the importer must pay $200 for 100kg. 3. Compound Tariffs A compound tariff is the combination of both a specific tariff along with an ad valorem tariff. It is often used for products that need tighter regulations. Example: A compound tariff might resemble a combination such as 5% of the value + $3 per item. For an item that costs about a hundred dollars, the duty is $5 (ad valorem tariff) + $3 (specific tariff) = $8 per unit. 4. Protective Tariff A protective tariff is designed to shield domestic industries from their foreign competitors. The final price makes the imported goods more expensive than domestically produced goods. Example: A country imposes tariffs on foreign agricultural products to secure local production. 5. Retaliatory Tariff This type of tariff is imposed as a response to possible unfair trade practices which are imposed by other countries. Example: The US increased the tariff on China’s exports to 145%, and in retaliation, China increased the tariff on US exports to 125%. 6. Revenue Tariff Revenue tariffs are imposed to generate income for the government instead of protecting local industries. Example: Developing countries can impose tariffs of 10 to 15% on imported goods to fund public infrastructure. 7. Import Tariff The tariff imposed on the item imported into a country is called the import tariff and is the most commonly used tariff. Example: The US imposes import tariffs on imported automobiles from Europe. 8. Export Tariff Export tariffs are tariffs that apply to goods that are sent out of a country. Export tariffs are openly used to restrict the export of rare resources. For example, if a country has fewer resources for agricultural goods, it will impose a higher export tax to restrict exports. Different Types of Tariff Codes Tariff codes or Harmonised Systems (HS) codes are codes used in global trade to classify exported or imported goods. These codes are developed by the World Customs Organisation (WCO). A tariff number or a code helps to determine the applicable rate while ensuring that there is complete customs compliance. It also helps in facilitating international trade documentation seamlessly. Structure of Tariff Code Code is numerical and varies in length depending on the country. It is usually 6 to 10 digits. The initial six digits are the HS code or the harmonised tariff system code. Apart from the six digits, the country adds additional digits to specify products per their needs. Example: TARIC (Integrated Tariff of the European Union) is used in Europe, apart from the HS code. Meanwhile, the HTS (Harmonised Tariff System) is used in the United States. How Are Tariffs and HS Codes Important for International Business? For an organisation that conducts international trade, it is essential to understand both the tariff and the respective tariff code, as it can affect them in more than one way: Applying the wrong tariff code can eat away at your profit margins. A wrong HS code classification can delay your shipment, result in penalties, and even get your goods seized. When correct HS codes are applied, it can help claim preferential tariff rates under the fair trade agreement and get duty exemptions or reductions. If your business can predict the tariff cost, it can also help you choose the right supplier, estimate costs more accurately, and plan inventory around imports. Understanding the custom tariff code and applying proper HS codes allows you to set your price competitively while staying profitable; it also helps in avoiding last-minute cost shocks. Applying correct tariff classification codes during customs clearance can build a solid track record with customs, logistics partners, and financial institutions. Also read- IMDG Code Get Accurate HS Code Assignment and Tariff Handling With Specialised Solutions From WareIQ WareIQ’s smart shipping solution helps eCommerce brands minimise cost leakages caused by RTOs, fake delivery attempts in NDR, weight reconciliation issues, and more. Our solution also offers prompt support for handling urgent client escalations, ensuring smooth operations at all times. Our solution offers the following capabilities: Multi-carrier engine enabling fast deliveries across 24,000+ pin codes Control Tower & automated workflows to minimise NDR & RTOs Same/Next-day delivery courier options Seamless Integration with your WMS, ERPs and Storefronts Shipping Badges to display precise Estimated Delivery Dates (EDD) Custom-branded tracking pages and notifications to enhance customer experience Also read - Understanding Custom Duty in India: A Comprehensive Guide Conclusion Tariffs and the respective tariff codes are cornerstones for any business that is involved in international trade. Whether you own an e-commerce business or you are into managing global supply chains, it is essential to understand how the tariffs and the subsequent HS code classification work. The understanding will allow you to have seamless processing. It will also help you to save money, time and regulatory hiccups. Suggested read - U.S. Trade Update: End of De Minimis Exemption and New Tariffs on India-Origin Shipments FAQs About Tariffs and Tariff Codes Does every import coming into the country impose tariffs?No, although a majority of imports will have tariffs, there can be some products that can enter a country duty-free as part of trade agreements.What is the main difference between a tariff and a tariff code?A tariff is a tax often imposed on imports or exports; conversely, a tariff code is the tariff classification that helps identify goods.Do tariffs have any effect on e-commerce businesses?Yes, as tariffs can increase the landed cost of the product production imported into the country. It impacts the prices, the profit margin and also the competitiveness in the e-commerce industry.Does every country have the same HS code?The first six digits are standard HS codes, while there can be additional digits depending on the country and its national classification.

September 23, 2025

What Is a Letter of Credit? A Key in International Payments

Every day, billions of goods are transported from one country to another. This international trade has been possible due to trust between companies. As per the World Trade Organisation, global trade is valued at $25.3 trillion in 2022. The question is, how do companies trust each other, and how do exporters trust importers to pay them? Well, the trust comes from the letter of credit. It is a beneficial financial instrument that is used in international commerce. A Letter of Credit acts like a bridge of trust between the importer and the exporter. This article will explore the necessary aspects of a letter of credit, including its definition, workings, advantages, and limitations. What is a Letter of Credit? A letter of credit is a form of written commitment that a bank provides to the exporter on behalf of the importer. It contains the specified amount that the seller must receive once the goods are delivered. However, the seller must meet the terms and conditions listed in the letter of credit to receive the money. LC, the full form for which is Letter of Credit, guarantees that the seller will get paid. It is also an essential document that mitigates risks for both buyer and seller in international transactions. Components of A Letter of Credit A letter of credit is a detailed document that has the following components: Applicant: The buyer or the importer requesting the letter of credit. Beneficiary: The seller or the exporter who will receive the payment. Issuing Bank: The bank that the buyer asks to issue the letter of credit. Advising Bank: The seller's bank authenticates the letter of credit. Amount: It is the value of goods on the letter of credit. Expiry Date: It is the last date for the submission of documents. Terms: These are the shipment terms for the shipping method, the port, and the delivery terms. Documents Required: Includes documents such as a bill of lading, commercial invoice, packing list, insurance certificate, and certificate of origin. How Does a Letter of Credit Work? The letter of credit works as mentioned below: First, a buyer and a seller agree on a transaction. As a seller would want security, they agree to use a letter of credit. Next, the buyer has to apply for an LC from their bank, which is also known as the issuing bank. Once the LC is issued, it is sent to the seller's bank, also known as the advising bank. As promised, the seller ships the goods and submits the required documents to the advising bank for payment. The advising bank checks the documents for compliance purposes, and once everything is clear, forwards them to the issuing bank. Once the papers are in order, the issuing bank checks the submitted documents, and payments are made to the seller. The issuing bank then settles the payment with the buyer. 8 Types of Letter of Credit It might seem uncommon, but there are several types of letters of credit, depending on the terms and conditions between a buyer and a seller. Below are the different kinds of letters of credit: 1. Confirmed LC Along with the issuing bank, the advising bank guarantees payments, so the letter of credit is called the confirmed LC. 2. Revolving LC A revolving LC is when a single LC can cover multiple shipments and allow the credit to be renewed at any time. It is usually used where regular shipments are made between the same seller and buyer. 3. Revocable and Irrevocable Credit Revocable LC is where the bank has the full authority to change the terms and conditions without prior notice to the beneficiary. At the same time, an irrevocable LC is where the bank cannot change the terms and conditions. 4. Standby LC Standby LC is a backup in case the buyer fails to pay the seller. It is a guarantee issued by the buyer's bank to the seller. 5. Documentary LC A documentary LC ensures that the issuing bank pays on behalf of the buyer once the specified documents are received. 6. Sight LC This type of letter of credit ensures that the seller gets the payment once the seller produces the sight LC and sends it to the bank with the necessary documents. 7. Transferable Credit As the name suggests, this LC allows the bank to transfer the payment to another party as requested by the original beneficiary. 8. Back-to-back Credit In this type of LC, the seller can request that their bank issue an LC on behalf of the party that supplies goods to them. Benefits of a Letter of Credit The process may be lengthy for a transaction between a buyer and seller. However, there are several benefits since a buyer and seller transaction can happen across countries or continents. Here are the benefits of a letter of credit for both buyers and sellers: For Buyer: A buyer must only pay when the goods are shipped as agreed. The risks are reduced when the trade is with new or overseas suppliers. Buyers can align the payment terms with shipment schedules. For Seller: A letter of credit guarantees payment for the goods shipped. A letter of credit reflects the buyer's seriousness and financial standing. Some letters of credit, such as Sight LCs, can ensure immediate payments. Risks and Limitations of Letter of Credit While there are many benefits to using a letter of credit for both the buyer and the seller, certain limitations and risks are also involved, and they are listed below: It can increase the cost by including fees for issuance confirmation and document handling. Every document needs to be accurate for the smooth flow of payment. The buyer and seller must depend on the respective banks for adherence, timelines and standards. Since banks don't deal with goods, there is a chance of fraud, too. Get Your International Trade Seamlessly Operated With Shipping Solutions From WareIQ WareIQ's smart shipping solution helps eCommerce brands minimise cost leakages caused by RTOs, fake delivery attempts in NDR, weight reconciliation issues, and more. Our solution also offers prompt support for handling urgent client escalations, ensuring smooth operations at all times. Our solution offers the following capabilities: Multi-carrier engine enabling fast deliveries across 24,000+ pin codes Control Tower & automated workflows to minimise NDR & RTOs Same/Next-day delivery courier options Seamless Integration with your WMS, ERPs and Storefronts Shipping Badges to display precise Estimated Delivery Dates (EDD) Custom branded tracking pages and notifications to enhance customer experience Conclusion With global trade, sellers and buyers worldwide can become business partners. The distance can create questions regarding the trust between an importer and an exporter. A letter of credit can be a metaphoric handshake across borders in such situations. Since it comes with a bank-backed framework, it ensures that payments get through and the goods are delivered in the best shape so that both importer and exporter are satisfied. Related read - Letter of Undertaking in Shipping: What It Is and When to Use It? FAQs About Letter of Credit Is an LC the same as a bank guarantee?No, a letter of credit ensures that payment is made when the supplier honours the conditions. On the other hand, a bank guarantee will make the payment in case of a default.Is a letter of credit legally binding?Yes, a letter of credit is completely legally binding and enforceable.Can I transfer a letter for credit?Yes, an LC can be transferred completely or partially to another party.What happens if the buyer does not pay the issuing bank?The issuing bank will still make a payment to the seller. Afterwards, the bank will recover the amount from the buyer.

September 22, 2025