L/C is perceived expensive because the costs linked to each transaction are visible, whereas the benefits are hidden, intangible.
L/C provides a guarantee of payment to the exporter. It waves the risk of non-payment, giving a definitve date for the receipt of the funds (useful in case of hedging strategies). Add to that the opportunity to receive the payment in advance of the due date (through non-recourse discounting og the receivable).
There has been a recent trend of organizations bypassing letters…