What Is a Letter of Credit From a Bank?

What Is a Letter of Credit From a Bank?

A letter of credit from a bank is a legally binding document that ensures a seller will receive payment if goods are delivered according to the agreed conditions. The document greatly reduces risks and makes the most of profits generated from business transactions, notes Express Trade Capital.

A letter of credit is normally issued by a bank on behalf of a buyer. The letter contains information on the terms and conditions that a seller must meet in order to receive payment, according to Express Trade Capital. This document is most commonly used in international trade since it guards both the seller and buyer against certain risks.