South Florida Arbitration & Litigation Lawyer Blog
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.
Please keep in mind that this post is being provided for educational purposes only. It is not designed to be complete in all material respects. Thus, it should not be relied upon as legal or investment advice. If the reader has any questions concerning the contents of this post, you should consult a qualified professional.
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