A Bank’s issued document on the customer’s purchase request, for the seller. It promises to the seller, that the buyer would pay a defined amount of money to the bank as a receipt in a specific time.
A letter of credit is a letter from a bank confirming that a buyer’s payment to a seller will be received in time and for the accurate amount. If the customer is unable to make a payment on the purchase, the bank will be asked to pay the remaining or full amount of their purchase.
Due to the style of international transactions, including factors such as distance, varying laws in each country, and obstacle in understanding each party, the use of letters of credit has become an essential aspect of global trade.