What Is a Letter of Credit?
Letter of Credit: What It Is, Examples, and How One Is Used What Is a Letter of Credit? A letter of credit, or a credit letter, is a letter from a bank guaranteeing that a buyer’s payment to a seller will be received on time and for the correct amount. If the buyer is unable to make a payment on the purchase, the bank will be required to cover the full or remaining amount of the purchase. It may be offered as a facility . Due to the nature of international dealings, including factors such as distance, differing laws in each country, and difficulty in knowing each party personally, the use of letters of credit has become a very important aspect of international trade. KEY TAKEAWAYS A letter of credit is a document sent from a bank or financial institute that guarantees that a seller will receive a buyer’s payment on time and for the full amount. Letters of credit are often used within the international trade industry. There are many different letters of credit including one called a
