A Letter of Credit is a general letter of promise from a lending institution or an investor that communicates in writing to you and any interested parties how much that financial institution would be willing to lend you. The Letter of Credit does not include the interest rate or any other terms of the loan.

The Letter of Credit is frequently utilized in international trade, where cargo is being bought and sold. In this case, the L/C is regulated by the International Chamber of Commerce, under the stipulations identified as the “Uniform Customs and Practice for Documentary Credits.”

A sight L/C is a Letter of Credit whereby the exporter of the cargo receives payment for goods immediately from the buyer upon presentation of the Letter of Credit. In other words, the sight L/C is given to the seller. When the seller presents the sight L/C to the purchaser, payment is due and payable. Another version of the sight L/C is the date/time sight L/C, whereupon payment is due and payable on the specified date, by the specified time.

When used in international cargo purchases, a Letter of Credit may also stipulate what forms of payment are acceptable. For instance, bank giros, wire transfers and bank checques may be use for payment because they automatically calculate varying currency conversion rates.

Letter of credit

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