letter of credit


Also found in: Dictionary, Thesaurus, Medical, Legal, Financial, Acronyms, Wikipedia.

letter of credit:

see credit, letter ofcredit, letter of,
commercial instrument through which a bank or other financial institution instructs a correspondent institution to advance a specified sum of money to the bearer.
..... Click the link for more information.
.

credit, letter of,

commercial instrument through which a bank or other financial institution instructs a correspondent institution to advance a specified sum of money to the bearer. The document is called a circular letter of credit when it is not addressed to any particular correspondent. In effect, a letter of credit is a draftdraft,
in banking, order by one party to another party to pay a stated sum to the person or firm in whose favor the draft is made. It is similar in form to the ordinary bank check. Often the drawer and the drawee of a draft are the same person.
..... Click the link for more information.
, save that the amount is merely stated as a maximum not to be exceeded. Letters of credit, mainly used by travelers, greatly simplify nonlocal business transactions. Those who issue such letters are usually so well known that any bank will honor the letter upon proper identification. Travelers' checks are a modified form of a letter of credit. They are issued in coupons, upon whose face a value is usually expressed in terms of the currency of a particular country. In the United States they are issued by express companies and banks. Circular letters of credit require that each payment, as it is made, be endorsed by the firm making payment so that other banks may know how much of the total credit has been used.
References in periodicals archive ?
The seller requires the buyer to obtain a letter of credit in favor of the seller, as a condition to selling goods or providing services, in order to reduce the risk of nonpayment.
First Community's attorney, Stuart Hankins of Sherwood, argued in his filings that the letter of credit wasn't straightforward or ordinary.
Early payment of a letter of credit is payment made by the bank for the receiver of funds under the letter of credit (which was opened with a deferred payment option for the buyer) after the letter of credit documents have been checked and accepted, but before the deferral period ends.
acts as the letter of credit bank, the depositary, as well as issuing and paying agent.
Equally importantly, the letter of credit can potentially be used as a tool for raising either pre or post-shipment finance.
Typically, the supplier insists on payment in advance or other guarantees, such as a letter of credit from a credible lending institution.
John Waxlax, president of GMAC Commercial Finance's Commercial Services division, said that this year, his firm expects to see import factoring growth driven in part by letter of credit elimination.
Accrual taxpayers normally cannot defer income with a letter of credit since the receipt of a note is taxable regardless of the collateral arrangement.
A Letter of Credit is an undertaking by a bank or other financial institution to pay to a beneficiary, usually named in the Letter of Credit, an amount of money to secure the customer's contractual obligations to the beneficiary.
City Council members said Wednesday they might ask the Department of Water and Power to obtain a letter of credit from the state to ensure that Los Angeles is paid for electricity sold to the state during the power crisis.
Ronald Mann's thorough research and rigorous analysis provide compelling evidence that the commercial letter of credit does not further the fundamental purpose traditionally associated with it.