A letter of credit guarantees payment of a specified sum in a specified currency, provided the seller meets precisely-defined conditions and submits the prescribed documents within a fixed timeframe. These documents almost always include a clean bill of lading or air waybill, commercial invoice, and certificate of origin. To establish a letter of credit in favor of the seller or exporter (called the beneficiary) the buyer (called the applicant or account party) either pays the specified sum (plus service charges) up front to the issuing bank, or negotiates credit.
Use this term in a sentence
Whenever I went to buy new equipment for the company I was given a letter of credit instead of cash.
I got the letter of credit and was happy because I knew the letter meant that they were going to pay.
The letter of credit was required to complete the deal so once it was received then the project could begin.