In international trade it is almost impossible to match payment with physical delivery of the goods, which constitutes conflicting problems for trade, since the exporter prefers to get paid before releasing the goods and the importer prefers to gain control over the goods before paying the money. The letter of credit is an effective means to solve these problems.
Then what is the letter of credit？ The letter of credit is a letter issued by a bank at the request of the importer in which the bank promises to pay upon presentation of the relevant documents. It is actually a conditional bank undertaking of payment. It refers to pay the beneficiary the value of the draft or documents provided that the terms and conditions of the letter of credit are complied with. Letter of credit is often shortened as L/C or L. C.
The letter of credit also has its unique and characteristic feature. It provides the bilateral security: offering the seller the security to get paid provided he presents impeccable documents, and the buyer the security to get the goods required through the documents he stipulates in the credit.
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