What Is Letter Of Credit?

A letter of credit is a letter from a financial institution in your behalf to another one stating you are a good risk to loan money to.

• A letter of credit is the most commonly used form of secure payment.
O It is a document issued by a financial institution at the buyer's request and instructions.
O It spells out the terms under which the seller will be paid.
 Pay the seller a certain amount when it produces documents according to the instructors.
O It acts as an escrow account.
• A letter of credit is the preferred method of payment in trade with areas outside of Western Europe, Canada, and the United States.
O Because it offers independent assurance to the both exporter and buyer.
• A letter of credit is a critical document, so it is imperative that the seller issue clear guidelines to the buyer on how to open a letter of credit.