Letters Of Credit Definition 3

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The common system, which has been in use for many years,

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is for the customer's bank to issue a 'letter of credit'

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at the request of the buyer, to the seller.

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The letter of credit essentially guarantees that the bank

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will pay the seller's invoice (using the customer's money of course)

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provided the goods or services are supplied

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in accordance with the terms stipulated in the letter,

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which should obviously reflect the agreement between the seller and buyer.

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This gives the supplier an assurance that their invoice will be paid,

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beyond any other assurances or contracts made with the customer.