Letter of Credit

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Definition of 'Letter of Credit'

A letter of credit (LC) is a document issued by a bank or other financial institution at the request of a customer, known as the applicant, to guarantee payment to a beneficiary, usually the seller of goods or services. The letter of credit is typically issued in exchange for a document that evidences the delivery of goods or services, such as a bill of lading or an invoice.

The letter of credit is a safe and secure way for buyers and sellers to conduct business internationally. It protects the buyer from non-payment by the seller, and it protects the seller from non-payment by the buyer.

There are two types of letters of credit: irrevocable and revocable. An irrevocable letter of credit cannot be canceled or amended without the consent of all parties involved. A revocable letter of credit can be canceled or amended by the issuing bank at any time, without notice to the beneficiary.

Letters of credit are used in a variety of transactions, including:

* Import and export transactions
* Sale of goods and services
* Construction projects
* Financial transactions

Letters of credit are governed by the Uniform Customs and Practice for Documentary Credits (UCP), which is a set of international rules that govern the use of letters of credit.

The UCP is published by the International Chamber of Commerce (ICC). It is the most widely used set of rules for letters of credit, and it is accepted by banks and financial institutions around the world.

If you are involved in an international transaction, you should be familiar with letters of credit. They are a safe and secure way to conduct business, and they can help to protect you from non-payment.

Here are some additional resources that you may find helpful:

* [The International Chamber of Commerce](https://iccwbo.org/)
* [The Uniform Customs and Practice for Documentary Credits](https://iccwbo.org/publication/uniform-customs-and-practice-for-documentary-credits/)
* [The Letter of Credit Handbook](https://www.theletterofcredithandbook.com/)

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