letter of credit

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Letter of credit (LOC)

A form of guarantee of payment issued by a bank on behalf of a borrower that assures the payment of interest and repayment of principal on bond issues.

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.

letter of credit

A promise of payment in the event that certain requirements are met. A letter of credit essentially substitutes the credit of a third party (usually a large bank) for that of a borrower. In the case of municipal bonds, an LOC generally permits a trustee to draw six months' interest and sufficient funds to retire outstanding bonds at par in the event of default.

letter of credit

a document used to effect payment for internationally traded goods, usually as part of a contract for the sale of goods which ensures that the supplier receives prompt and guaranteed payment while the purchaser obtains a short-term CREDIT line. In brief, under this facility, a purchaser in country A of goods supplied by a firm in country B can arrange a letter of credit from his bank (the credit issuing bank) authorizing it to make payment to the supplier either through a branch of the bank in country B or, more usually, through a bank (the negotiating bank) holding the supplier's account. Under a contract of sale of goods this will be done on the presentation to the negotiating bank of documents stipulated in the letter of credit, such as the bill of lading, insurance policy, certificate of origin, etc. In the case of certain letters of credit relating to particular transactions and customers located in heavily indebted countries, a secondary market has developed to offset political as well as commercial risk. See EXPORTING.

letter of credit (LOC)

(Pronounce each letter of the abbreviation;it is not pronounced as a word.) An instrument issued by a bank or other financial institution (issuer) agreeing that it will pay money to another (beneficiary), on behalf of the bank's customer (account party), upon the happening of certain named events.There is usually an issuance fee of 1 to 2 percent of the face amount of the LOC.Modern banking regulations require the same underwriting as for a commercial loan.The LOC will set out the exact prerequisites to be met before the bank will issue payment. These usually include a particular time and place to present the original letter of credit and the exact documents that must accompany the letter.Some states still follow the old “strict compliance”rule holding that any deviation from the instructions, no matter how minor, will justify the bank in refusing to pay. Others follow a “substantial compliance” rule, so that minor typographical or syntax errors in the presenting documents will not justify nonpayment. See also the two types of letters of credit: documentary letter of credit and standby letter of credit.

References in periodicals archive ?
A documentary credit is a bank's commitment to pay the supplier as long as the specified terms and conditions are met.
Documentary credit or D/C (also known as a letter of creditor L/C) - After cash in advance, this is usually considered the next safest method for the exporter.
In case the importer is not able to refund credit at the end of deadline, the BEA can transform the deferred documentary credits into an interim credits, he said.
The book begins with a useful explanation of why documentary credits are used in international business.
URR 725 - Uniform Rules for Bank-to-Bank Reimbursements under Documentary Credits
These include risk guarantees covering pre-and post-shipping, capacity building initiatives such as conducting workshops which train and educate private sector Qatari companies on key policy initiatives like Generalized System of Preferences (GSP), Uniform Customs Procedures for Documentary Credits (UCPDC), Trade Agreements etc," Tasdeer official added.
The Ethix Core solution for Islamic banking is a suite of technologies that help banks offer a wider array for revenue-generating products and services including automated branch management, Internet banking, treasury services, Islamic investments management and documentary credits among others.
The ETHIX Core solution for Islamic banking is a suite of technologies that helps banks offer a wider array for revenue-generating products and services, including automated branch management, Internet banking, treasury services, Islamic investments management and documentary credits, among others.
Established in 1995 and based in Palestine, Quds Bank is engaged in Commercial Banking and Investments through Lending, Financing, Opening Accounts and Documentary Credits.
Summary: The Bank of Agriculture and Rural Development (BADR) recorded a significant increase in the documentary credits (Credoc) for the payment of foreign trade operations, said on Tuesday the bank's CEO Boualem Djebbar.
So, for example, in a future issue I'd like to see more about the changes to documentary credits since the new rules [known as UCP600] of the International Chamber of Commerce came into effect in July 2007.
This article was first published in the Oct-Dec 2006 issue of DCInsight, a quarterly journal on Documentary Credits brought out by the International Chamber of Commerce which can be ordered at iccbooks.