LETTER OF CREDIT
A commitment or promise letter, from a bank or importer, that is written to the seller, which guarantees the payment will be received on time and in the correct specified amount. In case the buyer fails to make the payment on the purchase, the bank will be required to cover the full or remaining amount of the purchase. The letters are frequently use in international transactions to ensure the payment will be made and received, which has become a very significant aspect of the international trade.
Although it has numerous types, the two basic types are revocable-credit letter of credit and irrevocable-credit letter of credit; the latter has two subtypes: confirmed irrevocable letter of credit and not-confirmed irrevocable letter of credit.
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