Letter of Credit

Letter of credit is a document, typically from a bank, assuring that a seller will receive payment up to the amount of the letter of credit, as long as certain documentary delivery conditions have been met. In the event that the buyer is unable to make payment on the purchase, the beneficiary may make a demand for payment on the bank. The bank will examine the seller's demand and if it complies with the terms of the letter of credit, will honor the demand.