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It is LC opened by the importer bank in favour of person or organization in another country for import of goods. It is a kind of guarantee by the LC opening bank to the exporter in another country that payment will be made provided goods are send as per terms of the LC.
L/C. A binding document that a buyer can request from his bank in order to guarantee that the payment for goods will be tranferred to the seller. Basically, a letter of credit gives the seller reassurance that he will receive the payment for the goods. In order for the payment to occur, the seller has to present the bank with the necessary shipping documents confirming the shipment of goods within a given time frame. It is often used in international trade to eliminate risks such as unfamiliarity with the foreign country, customs, or political instability.
It is safest method of payment in international business, which address the issues of both seller and buyer.There are some banks involved in the process of letter of credit, like Issueing Bank(Buyer / Applicant Side), Negotiating / Advising Bank(Seller side), Confirming bank(who confirms the credit).Anyhow confirming bank is opional player.
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