What is Letter of Credit?
A definition of Letter of Credit
“A letter of credit is a document issued by a bank guaranteeing that a seller will receive payment on time and for the correct amount if the buyer fails to make the payment.”

Business Glossary > What is Letter of Credit?
Examples of Letter of Credit in a Sentence:
The exporter required a letter of credit before shipping the goods.
A letter of credit provides assurance to both sellers and buyers in international trade.
Using a letter of credit can reduce risk for both parties in a transaction.
Why is Letter of Credit Important in Business?
A letter of credit is crucial in international trade, providing security to sellers by guaranteeing payment from the buyer’s bank. It reduces transaction risk and ensures smoother trade flows by instilling confidence in both parties.
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Associated Terms
Here are some associated business terms and synonyms for “Letter of Credit”:
- Documentary Credit
- Bank Guarantee
- LOC
General Electric’s Use of Letters of Credit
General Electric regularly utilizes letters of credit to facilitate international deals, ensuring that overseas suppliers receive guaranteed payments. This mechanism supports GE in maintaining strong business relationships and conducting smooth trade transactions globally.
Final Notes on Letter of Credit
When a business considers using a letter of credit, they should evaluate the cost and stipulate clear, achievable terms. Understanding the involved banking operations and potential fees is also vital for maximizing their benefits in trade.
This has been a definition of Letter of Credit meaning.
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