letter of creditletter of credit
letter of credit
nounpl. letters of credit Abbr. L/C
(plural letters of credit)
letter of credit - Investment & Finance Definition
A document written by a bank that guarantees the payment of a customer’s bills up to a certain amount. The letter eliminates the seller’s 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 traveler’s letter of credit typically lists banks that will accept payment requests.
- A performance letter of credit guarantees performance of a contract’s terms.