A letter of credit (LC) solves the same problem as escrow: neither side goes first, because the bank promises to pay when the documents are right. The difference is who holds the promise and what it costs. For a small or mid-size order, banks often decline, quote fees that eat the margin, or demand collateral you would rather keep. Escrow is the same logic without the bank.
Side by side
Who holds the money
LC: your bank commits to pay; the money is usually blocked or collateralised on your side. Escrow: the funds themselves are held by the escrow until release.
What triggers payment
LC: documents that match the credit exactly, checked by banks; a typo can block payment. Escrow: the condition you both wrote (inspection passed, shipped, delivered), confirmed by you or decided by an arbiter.
Cost and minimums
LC: fees on both sides, amendment fees, and banks that will not open one under a size they consider worthwhile. Escrow: a percentage of the deal, quoted up front, no minimum order.
Time to set up
LC: days to weeks, two banks. Escrow: the time it takes to write the agreement and fund it.
Disputes
LC: the bank checks documents, not goods; a dispute about the goods is outside the LC. Escrow: an arbiter decides on the evidence both sides submit, with the reason in writing.
Currency
LC: fiat. Escrow on iEscrow: crypto (USDT, USDC and others); the supplier has to accept it.
When each one is right
- Large order, both sides banked, supplier insists on bank instruments: LC.
- Order the bank will not open an LC for, supplier accepts USDT, both sides want milestones tied to inspection and shipping: escrow.
- Supplier only accepts T/T to their bank and the order is small: neither; negotiate smaller tranches and ship-before-balance.
Honest limit: an LC is a bank’s promise and carries the bank’s standing. Escrow on iEscrow is custodial: the platform holds the funds, and says so. Both are the same idea, nobody goes first, at two different price points and sizes.