Letter of credit
A letter of credit is a contractual commitment by the buyer's bank to pay once the goods have been shipped and the required documents are presented to
Official source: Letter of Credit - International Trade Administration →
the seller's bank as proof. It is built to protect both sides of a cross-border sale: the exporter obtains a guarantee of payment while the importer secures reasonable payment terms. It ranks among the most secure payment instruments available, but it is labour-intensive and relatively expensive in bank fees, so it is recommended for higher-risk situations — a new or less-established trading relationship, credit information that is unacceptable or unavailable, or a request for extended payment terms. The documentary requirements are detailed and prone to errors and discrepancies, and mistakes bring payment delays and extra fees, so the paperwork is best prepared by trained professionals.
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