letter of credit
letter of credit
English Definitions:
letter of credit (noun)
a document issued by a bank that guarantees the payment of a customer's draft; substitutes the bank's credit for the customer's credit
letter of credit (Noun)
A document, used primarily in trade finance and issued generally by a financial institution, in which the institution promises to pay debts up to a certain limit to be acquired by the beneficiary against delivery of documents specified in the letter.
Letter of credit
A letter of credit is a document issued by a financial institution, or a similar party, assuring payment to a seller of goods and/or services provided certain documents have been presented to the bank. These are documents that essentially prove that the seller has performed his duties under an underlying contract and the goods have been supplied as agreed. In return for these documents, the beneficiary receives payment from the financial institution that issued the letter of credit. The letter of credit serves essentially as a guarantee to the seller that it will be paid regardless of whether the buyer ultimately fails to pay. In this way, the risk that the buyer will fail to pay is transferred from the seller to the letter of credit's issuer. The letter of credit can also be used to ensure that all the agreed upon standards and quality of goods are met by the supplier, provided that these requirements are reflected in the documents described in the letter of credit. Letters of credit are used primarily in international trade for transactions between a supplier in one country and a customer in another. Most letters of credit are governed by rules promulgated by the International Chamber of Commerce known as Uniform Customs and Practice for Documentary Credits. They are also used in the land development process to ensure that approved public facilities will be built. The parties to a letter of credit are the supplier, usually called the beneficiary, the issuing bank, of whom the buyer is a client, and sometimes an advising bank, of whom the beneficiary is a client. Almost all letters of credit are irrevocable, i.e., cannot be amended or canceled without the consent of the beneficiary, issuing bank, and confirming bank, if any. In executing a transaction, letters of credit incorporate functions common to giros and traveler's cheques.
Letter of credit
A letter of credit (LC), also known as a documentary credit or bankers commercial credit, or letter of undertaking (LoU), is a payment mechanism used in international trade to provide an economic guarantee from a creditworthy bank to an exporter of goods. Letters of credit are used extensively in the financing of international trade, when the reliability of contracting parties cannot be readily and easily determined. Its economic effect is to introduce a bank as an underwriter that assumes the counterparty risk of the buyer paying the seller for goods.
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"letter of credit." Kamus.net. STANDS4 LLC, 2024. Web. 20 Apr. 2024. <https://www.kamus.net/english/letter+of+credit>.
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