Letter of credit - Financial definition
Concise definition of the term letter of credit
A letter of credit is a financial product used in international trade to guarantee payment from a bank to a seller upon presentation of specified documents.
Comprehensive definition of the term letter of credit
In international trade, a letter of credit acts as a secure method of payment, mitigating risks for both buyer and seller. It assures the seller that they will receive payment once they fulfill the terms of the agreement outlined in the letter. This can include presenting documents such as invoices, shipping documents, or inspection certificates. Letters of credit are widely used in global commerce, providing assurance to parties across borders where trust may be limited and facilitating transactions in various industries from manufacturing to commodities trading.