Letter of credit

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Definition

The letter of credit is an operation by which a bank undertakes, on behalf of its importing client, to pay an exporter:

  • within a certain period of time,
  • within a certain amount,
  • in return for the exporter's submission of documents recognized as strictly conforming (to those requested in the opening of the documentary credit),

justifying the value of the shipment of goods or the provision of services.

The letter of credit is irrevocable. It can be confirmed (in this case, the confirming bank, which is in contact with the exporter, adds its confirmation, i.e. it takes over the country risk and the risk on the issuing bank.

 

schema

Speakers

The principal: the importer
The beneficiary: the exporter
The issuing bank: the importer's bank
The notifying or confirming bank: this is the bank in contact with the exporter