Letters of credit represent one of the most important payment instruments in foreign trade because they enable a safer exchange of goods, protecting the interests of both the buyer and the seller. A letter of credit is most often used when the buyer and seller do not know each other well enough.

The letter of credit represents an irrevocable obligation of the issuing bank (the bank that opens the letter of credit at the order of the importer) to pay the user of the letter of credit (exporter) for the delivered goods or performed service in the amount of the presented documents, if the documents are presented to the bank in accordance with the previously established conditions and deadlines defined in the text letters of credit. Since the letter of credit is a formal instrument, all participants in the business must strictly adhere to the terms defined by the letter of credit.

This financial payment instrument provides security to both parties, the buyer and the seller of goods or services:

• advantages for the buyer – obtaining the goods as agreed, without the risk of paying in advance before the goods have been seen,
• advantages for the seller – safe collection of delivered goods if they are in accordance with the instructions and terms defined by the letter of credit.