letter of credit
letter of credit
Definition
letter of credit
noun
a letter from a bank asking that the holder of the letter be allowed to draw specified sums of money from other banks or agencies, to be charged to the account of the writer of the letter
letter of credit Finance Definition
A
document written by a bank that guarantees the payment of a customers bills up
to a certain amount. The letter eliminates the sellers credit risk because it
pledges that the bank intends to use its assets to pay for the purchase. It
typically is used in international trade. There are various types of letters of
credit:
- A sight letter of credit is payable when the required documents have been presented.
- A revolving letter of credit is issued for a certain amount of money and can be renewed as long as the limit is not exceeded.
- A travelers letter of credit typically lists banks that will accept payment requests.
- A performance letter of credit guarantees performance of a contracts terms.
letter of credit
Law Definition
n
A
financial instrument, typically issued by a bank, in which the issuing
institution commits to pay a draft presented
by a third party in a specified format or meeting certain criteria.
Browse dictionary entries near letter of credit
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