letter of credit

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Related to letters of credit: Standby Letters of Credit

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 ?
For her part, Jehad Kazim, Director of Legal Services, Dubai Chamber said: "We are always keen to support the business community in Dubai and keep companies and professionals informed about important tools such as letters of credit, and encourage businesses to adopt practices in line with international standards in order to improve operations and performance."
Therefore, it is required to prepare books for interpreting these laws comprehensively considering the position and rules as soon as possible because there is no comprehensive book on the interpretation of the provisions of the letters of credit. Obviously, detailed knowledge of these rules can prevent fraud in letters of credit and business development.
Letters of Credit were fundamental to the development of international trade at the end of the Middle Ages.
This is where letters of credit come into their own, particularly when used in a proactive and creative way.
At 12.69 billion riyals, new letters of credit last month recorded their highest level since September, according to the released data.
Summary: -"Guaranteeing foreign investment and insurance of letters of credit " was the theme of the workshop organised on February 3-4 in Tunis as part of boosting the insurance system against the risks of exportations for the Tunisian enterprises.
Megator Ltd, based on Woodbine Street, Hendon, has used the North East Chamber of Commerce's one-day 'Introduction to Export', 'Export Procedures and Documentation' and 'Understanding Letters of Credit' courses to help it export its products around the world.
In addition to having different functions, letters of credit have other varying characteristics.
The line of credit can sometimes also issue letters of credit, but you have to know to ask for it.
We still give them credit today, making letters of credit unnecessary.
Letters of credit have typically been used in international transactions due to such issues as distance and differing laws in each country.
The letters of credit issued by the banks in connection with the residential rental building back a Fannie Mae credit facility, which in turn secured bonds issued by the New York City Housing Development Corporation.