Letter of Credit (LC)

A Letter of Credit is a written undertaking given by a bank (Issuing Bank) to a beneficiary (Issuing Bank’s client) to pay the beneficiary a stated amount within a specified time period as agreed between both parties in compliance with the terms and conditions in the Letter of Credit.

A letter of credit is beneficial for both parties involved as it assures the seller of receipt of funds upon fulfillment of terms of the trade agreement and the buyer can portray creditworthiness and negotiate longer payment terms, by having a bank back the trade transaction.