A letter issued by a bank authorizing the bearer to draw a stated amount of money from the issuing bank, its branches, or other associated banks or agencies.
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.
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.
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.