Letter Of Credit

• A letter of credit is the most commonly used form of secure payment.
  • It is a document issued by a financial institution at the buyer's request and instructions.
  • It spells out the terms under which the seller will be paid.
    • Pay the seller a certain amount when it produces documents according to the instructons.
  • It acts as an escrow account.

• A letter of credit is the preferred method of payment in trade with areas outside of Western Europe, Canada, and the United States.
  • Because it offers independent assurance to the both exporter and buyer.

• A letter of credit is a critical document, so it is imperative that the seller issue clear guidelines to the buyer on how to open a letter of credit.

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© 2004 John Michael Pierobon

Notes