Letters of Credit are one of the most important payment instruments in international trade, as they enable a secure exchange of goods and money while simultaneously protecting the interests of both the buyer and the seller. They are most commonly used when the buyer and seller are located far apart and do not know each other well.
A letter of credit represents an irrevocable commitment by the issuing bank (the bank that opens the letter of credit at the request of its client, the importer) to pay the beneficiary (the exporter) for the delivered goods, up to the amount specified in the presented documents, provided that these documents comply with the predetermined conditions and deadlines outlined in the letter of credit. All parties involved must strictly adhere to the conditions defined within the letter of credit.
