Letter of Credit – South Florida Business and Commercial Litigation and Arbitration Attorney:
A Letter of Credit is an instrument or document issued by a bank guaranteeing the payment of a customer’s drafts up to a stated amount for a specified period. It substitutes the bank’s credit for the buyer’s and eliminates the seller’s risk. It is used extensively in international trade.
There are varied types of letters of credit. A commercial letter of credit is normally drawn in favor of a third party, called the beneficiary. A performance letter of credit is issued to guarantee performance under a contract. A traveler’s letter of credit is issued for the convenience of a traveling customers and typically lists correspondent banks at which drafts will be honored. A revolving letter of credit is issued for a specified amount and automatically renewed for the same amount for a specified period, permitting any number of drafts to be drawn so long as they do not exceed its overall limit. A confirmed letter of credit is provided by a correspondent bank and guaranteed by the issuing bank.
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