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What is a Letter of Credit?
A letter of credit is a financial document that guarantees payment based on an outcome between two parties, such as the completion of a service or delivery of goods. A bank issues it on behalf of one party, and it promises to pay the other party a certain amount of money once defined conditions are met. These conditions might include the delivery of goods, the submission of certain documents, or the completion of other specified requirements. Letters of credit may be revocable or irrevocable.
Irrevocable
The letter of credit is a definite commitment by payment of the issuing bank provided that the required documents are present and that the terms and conditions of the letter of credit are met. An irrevocable letter of credit may be amended or canceled only with the agreement of all parties to the letter of credit.
Revocable
The letter of credit may be amended or canceled at any time by the issuing bank.
Letters of credit may also be payable upon sight or payable by time draft.
Payable Upon Sight
Payable upon presentation of the required documents by the issuing bank.
Payable by Time Draft
A time draft specifies payment a certain number of days after a date or an event for the payment.
I Still Have Questions.
That's what we're here for - to help your business grow and become even more successful. We're happy to discuss the details of letters of credit or other ways to assist your business. Contact a loan officer today at businesslending@efirstbank.com, click on the Get Started button above and we'll contact you, or call us: