Business, Legal & Accounting Glossary
L/C. A binding document that a buyer can request from his bank in order to guarantee that the payment for goods will be tranferred to the seller. Basically, a letter of credit gives the seller reassurance that he will receive the payment for the goods. In order for the payment to occur, the seller has to present the bank with the necessary shipping documents confirming the shipment of goods within a given time frame. It is often used in international trade to eliminate risks such as unfamiliarity with the foreign country, customs, or political instability.
n. a document issued by a bank guaranteeing to provide a customer a line of credit (automatic loan up to a certain amount) for money or security for a loan. Such a letter is used primarily to facilitate long-distance business transactions.
A letter of credit is a document a buyer requests from their bank stating that payment to a seller will be made, in order to reassure the seller that they will not be left empty-handed. The seller receives this letter of credit from the buyer’s bank. A letter of credit authorizes the seller to draw drafts up to a stipulated amount – thus the bank ends up paying instead of the buyer. A letter of credit often comes with very specific instructions in order for the seller to obtain the payment(s). To make good on the letter of credit, the seller must often present the necessary documentation within a specified time frame confirming the delivery of goods. A letter of credit is often used in international business, since the letter of credit essentially helps eliminate risk.
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This glossary post was last updated: 21st November, 2021 | 0 Views.