Can someone explain to me briefly about letter of credit?

Question

(no wikipedia copy-paste please)

Answer 1

A letter of credit is a promissary note. A letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount. In the event that the buyer is unable to make payment on the purchase, the bank will be required to cover the full or remaining amount of the purchase.

Letters of credit are often used in international transactions to ensure that payment will be received. Due to the nature of international dealings including factors such as distance, differing laws in each country and difficulty in knowing each party personally, the use of letters of credit has become a very important aspect of international trade. The bank also acts on behalf of the buyer (holder of letter of credit) by ensuring that the supplier will not be paid until the bank receives a confirmation that the goods have been shipped.

There are various types of L/Cs, three of which are Irrevocable Letter of Credit (ILoC), Sight Letter of Credit (SLoC) and Standby Letter of Credit (SBLoC). The last one's tricky. It's a stipulation that states a letter of credit will be called back if the payer defaults.

Answer 2

It is a document issued by a bank, on your behalf and at your expense, that guarantees payment once goods are made available, or a service is rendered, to you. It's sort of like what kids used to do (and may still do) - you hang onto something the other person wants, and the other person hangs on to something you want, and you both let go at the same time.

Answer 3

Visit http://www.CreditCardHelpDesk.com and you will find what you need. If you can't find it there then you won't find it anywhere.