Definition of Letter Of Credit

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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.

another definition...

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.

another definition...

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.


historic definition...

Letter of credit -- See Circular letter of credit ; see Commercial letter of credit.


About the author

Mark McCracken

Author: Mark McCracken is a corporate trainer and author living in Higashi Osaka, Japan. He is the author of thousands of online articles as well as the Business English textbook, "25 Business Skills in English".


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