Letter of credit in Polish banking law

Publication date: April 14, 2026

A letter of credit is a financial instrument. It constitutes a form of domestic or international settlement conducted through a bank. It is a written commitment by the bank to pay a specified amount for documents submitted within a specified timeframe, as specified in the letter of credit. It protects the interests of both parties to the contract by ensuring the exporter’s immediate transfer of the receivable, while allowing the importer to condition payment upon the supplier’s fulfillment of specific conditions. Letters of credit are offered by banks operating in the Polish market – details regarding fees can be found in the tables of fees and commissions published on the banks’ websites.

The institution of letters of credit is regulated by the Act of 29 August 1997 – Banking Law. Articles 85 and 86 of this Act distinguish three types of letters of credit:

1. documentary letter of credit,
2. standby letter of credit,
3. cash letter of credit.

The process of settling a transaction using a letter of credit involves: the bank client (the person requesting the letter of credit), the issuing bank, the intermediary bank, and the beneficiary of the letter of credit. Additionally, a bank confirming the letter of credit may also be involved, but this is not a necessary feature of the letter of credit relationship.

A bank opens a letter of credit at the request of its client. It acts in its own name on the client’s behalf, fulfilling the obligation to a third party. In the agreement concerning the letter of credit opening, the bank and the requesting party specify the terms and conditions of the letter of credit and the manner in which the bank will fulfill the obligation arising from its opening.

The basis for instructing a bank to open a letter of credit is the underlying relationship between the bank’s client and the beneficiary of the letter of credit. The bank is not a party to this relationship. It is neither authorized nor obligated to verify whether the beneficiary of the guarantee has fulfilled its obligation under the underlying relationship. The bank’s sole responsibility is to verify whether the conditions specified in the letter of credit have been met, i.e., whether the beneficiary of the guarantee has properly presented the documents specified in the letter of credit.

Banking law requires that a letter of credit agreement be in writing. It is reserved for evidentiary purposes only. The letter of credit should include:

1. specifying the name and address of the principal (recipient) and the beneficiary (supplier),
2. indication of the amount and currency of the letter of credit,
3. its validity period,
4. description of the documents upon presentation of which the beneficiary is entitled to request payment under the letter of credit.

The issuing bank’s obligation becomes due upon the beneficiary’s presentation of documents in accordance with the terms of the letter of credit. Most often, the letter of credit agreement specifies the following documents:

1. invoice or other type of bill,
2. cargo specification,
3. documents confirming the quantity, condition and characteristics of the cargo, including certificates,
4. a transport document, e.g. CMR or international waybills, CIM or international air waybill,
5. certificate of origin,
6. insurance policy,
7. bill of exchange issued by the exporter.

The process of settling a transaction using a letter of credit is presented in the diagram below: [1]

Individual stages of settling a transaction using a letter of credit:

1. The parties to the agreement include a provision for settlement of the transaction by means of a letter of credit.
2. The importer gives his bank an order to open a letter of credit.
3. The importer’s bank opens a letter of credit and forwards its content to the intermediary bank.
4. The importer is notified of the opening of the letter of credit.
5. The intermediary bank confirms the authenticity of the opened letter of credit and notifies the exporter of its opening.
6. The exporter ships the goods and collects the required documents in order to obtain payment.
7. The exporter presents a complete set of documents to the intermediary bank, and the intermediary bank presents them to the opening bank.
8. The opening bank makes the payment to the exporter.

An additional form of financial security for a letter of credit may be:

1. the use of letters of credit that cannot be revoked, as they oblige the issuing bank to pay/disburse the funds under the letter of credit as soon as the exporter provides the necessary documents (specified in the terms and conditions of the letter of credit) and within the agreed deadline, and any changes to such a letter of credit are possible only when all parties to the transaction – the exporter and the importer – agree to it;
2. using confirmation of letters of credit, because then the exporter’s bank verifies the importer’s bank whether it will take on the risk of not receiving funds from the importer’s bank.

In summary, a documentary letter of credit serves not only as a form of payment in international trade but also as a security measure – protecting the interests of both the buyer (principal) and the seller (beneficiary). The principal minimizes the risk of payment before receiving the seller’s payment, as the issuing bank conditions payment upon the presentation of documents confirming the fulfillment of the obligation to the principal, while the beneficiary does not bear the risk of the buyer’s insolvency, as the bank’s obligation is independent. Considering the above, a documentary letter of credit is primarily used between foreign contractors who do not know each other closely, in accordance with the principle of limited trust.

Provisions of the Banking Law Act:

Art. 85. [Documentary letter of credit]

1. A bank, acting on behalf of a client but in its own name (the bank issuing the letter of credit), may undertake in writing to a third party (the beneficiary) to pay the beneficiary of the letter of credit an agreed amount of money after the beneficiary has fulfilled all the conditions specified in the letter of credit (documentary letter of credit).

2. A documentary letter of credit must include in particular: the name and address of the principal and beneficiary, the amount and currency of the letter of credit, the validity period of the letter of credit and a description of the documents upon presentation of which the beneficiary is entitled to request payment under the letter of credit.

3. The obligation of the issuing bank becomes due upon presentation of documents by the beneficiary in accordance with the terms of the letter of credit.

4. The provisions of paragraphs 1-3 shall apply accordingly to standby letters of credit.

Art. 86. [Cash letter of credit]

1. A bank, acting on behalf of a client but in its own name (the issuing bank), may undertake in writing to another bank to refund amounts paid to the beneficiary or to purchase bills of exchange drawn by the beneficiary on the designated bank (cash letter of credit).

2. A cash letter of credit must include in particular: the name and address of the person authorized to make payments, the amount and currency of the letter of credit and its validity period.

3. The obligations of the issuing bank become due upon payment to the beneficiary in accordance with the terms specified in the letter of credit, provided that the beneficiary presents an identity document.

4. If the cash letter of credit makes payment conditional upon the beneficiary meeting conditions other than those specified in paragraph 3, payment may only be made after all of these conditions have been met.

Art. 86a. [Dispositive nature of provisions on bank guarantees and letters of credit]

The provisions of Articles 82-86 apply unless the parties to the contract agree otherwise.

Art. 87. [Limitation of claims]

1. Claims arising from bank guarantees, sureties granted by banks and letters of credit that have become due shall expire after 6 years.

2. The limitation period for claims arising from guarantees and letters of credit begins on the date of submission of an effective payment request and within this period the claim is due, even if the obligation to which the guarantee or letter of credit was related has already expired.

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[1] https://ksiegowosc.infor.pl/obrot-gospodarczy/windykacja/760063,Akredytywa-jako-forma-zabezpieczenia-platnosci-w-transakcjach-miedzynarodowych.html#google_vignette