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 ?
By way of example, the bank must pay on a letter of credit if the beneficiary presents the documents required by the letter of credit, irrespective of the existence of disputes between the beneficiary and applicant under the underlying goods or services contract.
3--Pursuant to section 5-116, the principle governing the assignment of transfer right of the letter of credit is called "transferability" and the principle governing the assignment of the right of receiving the revenues of letter of credit is called "assignability ".
Contrary to the rhetoric of the last 20 years predicting the demise of the traditional letter of credit, it is in fact alive and kicking.
A letter of credit that requires the foreign supplier to provide certain documents (title or shipping documents for example) before payment is made is called a "documentary letter of credit.
The letter of credit obtained by the buyer in TAM 200105061 was secured by mortgages on real property owned by the corporations sold.
Once the bank issues a Letter of Credit that states it is irrevocable, then the bank is legally committed to pay the amount demanded subject to satisfaction of any conditions stated in the Letter of Credit.
The costs saved by doing so could well exceed the costs associated with the increased risk of the issuing bank's refusal to allow a draw on the letter of credit for failure to satisfy its conditions.
Once your company has established a policy, entrust the task of negotiating letter of credit terms to the export marketing department.
This means that once a letter of credit is established by the insured it can be modified or revoked only with the consent of the insurer.
Accordingly, landlords should look carefully at the draw-down rights under both the Lease and the letter of credit itself.
A letter of credit with no discrepancies costs about $250 to $350 per transaction, but if you have discrepancies and amendments, it'll probably cost $600 to $700.
23~ In fact, the international letter of credit is required by the government in many countries to handle the payment side of export transactions.