Term of the Day letter of credit

Term of the Day

letter of credit

L/C. A binding document that a buyer can request from his bank in order toguarantee that the payment for goods will be tranferred to the seller. Basically, a letter of credit gives the seller reassurance that he will receive thepayment for the goods. In order for the payment to occur, the seller has topresent the bank with the necessary shipping documents confirming the shipment of goods within a given time frame. It is often used in international trade to eliminate risks such as unfamiliarity with the foreign country,customs, or political instability.
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Usage Example
When I purchased goods from another country the seller requested a letter of credit to give him reassurance that he would be paid.