letters of credit

A Letter of Credit (LC) is a financial document issued by a bank, assuring that a seller will receive payment from a buyer, provided certain conditions are met. It's commonly used in international trade to mitigate risk. When a buyer wants to purchase goods from a seller overseas, they can ask their bank to issue an LC, which guarantees the seller will be paid once they deliver the goods and fulfill specific requirements, like providing shipping documents. This arrangement builds trust between parties who may not know each other and helps facilitate smooth transactions across borders.