Letter of Credit (L/C) is a written document of the third party (Beneficiary) or its designated party, in accordance with the terms of the letter of credit, in accordance with the terms of the letter of credit, in accordance with the requirements and instructions of the bank (the applicant), or on its own initiative. A letter of credit is a written document of conditional payment by a bank.
In international trade, the buyer and seller may not trust each other. After the buyer is worried about the advance payment, the seller does not deliver the goods as required by the contract; the seller is also concerned that the buyer does not pay after the delivery or the delivery of the shipping documents. Therefore, two banks are required to act as guarantor of the seller and the buyer, and to replace the business credit with bank credit. The instrument used by banks in this activity is the letter of credit.
It can be seen that a letter of credit is a bank's certificate of conditional payment of guarantee, becoming a common way of settlement in international trade activities. In accordance with the general provisions of this method of settlement, the buyer first deposited the money in the bank and opened a letter of credit by the bank to notify the seller of the seller's opening bank, the seller, the seller in accordance with the terms of the contract and the letter of credit, and the payment by the bank for the buyer.