TeachMeFinance.com - explain Letter Of Credit
letter of credit (L/C) -- May be revocable or irrevocable - A document,
consisting of specific instructions by a buyer of goods, that
is issued by a bank to the seller who is authorized to draw
a specified sum of money under certain conditions, i.e., the
receipt by the bank of certain documents within a given time.
An irrevocable L/C provides guarantee by the issuing bank
in the event that all terms and conditions are met by the
buyer (or drawee). A revocable L/C can be canceled or altered
by the drawee after it has been issued by drawee's bank. A
confirmed L/C is one issued by a foreign bank which is validated
or guaranteed by a U.S. bank for a U.S. exporter in the case
of default by the foreign buyer or bank.
letter of credit -- a document issued by a financial institution on behalf of a buyer stating the amount of credit the buyer has available, and that the institution will honor drafts up to that amount written by the buyer. It gives the buyer the prestige and financial backing of the issuing institution and satisfies the requirements of the seller in completing the transaction. The accepting institution has a prior agreement as to how the buyer will pay for the drafts as they are presented.
Letter Of Credit -- A commitment, usually by a bank on behalf of a client, to pay a beneficiary a stated amount of money under specified conditions.
Letter of credit -- See Circular letter of credit ; see Commercial letter of credit.
About the author
Copyright © 2005 by Mark McCracken, All Rights Reserved. TeachMeFinance.com is an informational website, and should not be used as a substitute for professional financial or legal advice. TeachMeFinance.com and its owner recommend consultation with a professional financial advisor prior to any investment or financial decision. Please read our disclaimer.