Commercial Letter of Credit

A Commercial Letter of Credit is a financial document issued by a buyer’s bank to guarantee payment to a seller for goods or services, provided the seller meets specific terms and submits proper documents. It reduces risk for both parties: the seller is assured of payment if conditions are met, and the buyer ensures payment is only made when the seller complies with agreed-upon conditions. This mechanism facilitates international trade by providing trust and security, especially when the buyer and seller are unfamiliar with each other or operate in different countries.