Commercial letters of credit


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Related to Commercial letters of credit: Revocable letter of credit, Irrevocable Letters of Credit

Commercial letters of credit

Trade-related agreement that a certain amount of bank funds is available to an entity.

Letter of Credit

A statement issued by a bank to the buyer of a good stating that the seller will receive payment on time and in the correct amount. If the buyer fails to make payment, the bank will do so on his/her behalf. The buyer presents a letter of credit to the seller, which eliminates the risk that the seller will not be paid. Letters of credit have become very common in international commerce, as distance and other factors make it difficult for sellers to establish the creditworthiness of every buyer.
References in periodicals archive ?
(81) The Task Force finally recommended that a different standard should apply for commercial letters of credit as opposed to standbys.
The company's new financing consists of three principal components: $55 million in long-term mortgage financing with GE Capital Franchise Finance Corporation which will be secured by 75 of the Company's restaurants; $34.5 million in financing from a sale and leaseback arrangement with a real estate investment trust involving 45 of the company's restaurants; and a $30 million three year revolving credit facility of which up to $20 million will be available to support commercial letters of credit with the remainder available to provide working capital and for other corporate needs.
None of the explanations qualifies as a general, unified explanation for all of the transactions in which businesses use commercial letters of credit. Taken together, however, they provide a general picture of plausible motivations for much of the universe of commercial letter-of-credit transactions.
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