GM Letter of Credit Consultant

What is a Letter of Credit?

A letter of credit (often verbally referred to as ’the credit’) is a conditional bank guarantee covering aspects and conditions for correct goods delivery and correct payment for goods or services delivered. It is the buyer of the goods who, through and by his bank, opens a l/c in favour of the seller of the goods and the buyer is dependent on having a good working relationship with his bank – the l/c opening bank.

A definition often used by banks and based on the rules laid down by the International Chamber of Commerce (ICC) -–Article 2 of Uniform Customs and Practice for Documentory Credits (the UCP500) indicates:

A documentory credit is an arrangement whereby a bank that acts according to instructions received from a customer (the applicant), commits itself to pay an amount to a third party (the beneficiary) against that party’s presentation of stipulated documents complying with the credit.