A letter of credit, abbreviated L/C, is a bank’s conditional promise to pay issued by a bank at the request of an importer (the applicant/buyer), in which the bank promise to pay an exporter (the beneficiary of the letter) upon presentation of documents specified in the L/C. An L/C reduces the risk of non-completion, because the bank agrees to pay against documents rather than actual merchandise.
By L/C, the issuing bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount. In the event that the buyer is unable to make payment on the purchase, the bank will be required to cover the full or remaining amount of the purchase.
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