Letter of credit
![After a contract is concluded between a buyer and a seller, the buyer's bank supplies a letter of credit to the seller.](/Images/godic/202501/03/Letter_of_credit_12405.png")
![Seller consigns the goods to a carrier in exchange for a bill of lading.](/Images/godic/202501/03/Letter_of_credit_22405.png")
![Seller provides the bill of lading to bank in exchange for payment. Seller's bank then provides the bill to buyer's bank, who provides the bill to buyer.](/Images/godic/202501/03/Letter_of_credit_32405.png")
![Buyer provides the bill of lading to carrier and takes delivery of the goods.](/Images/godic/202501/03/Letter_of_credit_42405.png")
A letter of credit is a document, typically from a bank (Issuing Bank), assuring that a seller (Beneficiary) will receive payment up to the amount of the letter of credit, as long as certain documentary delivery conditions have been met. In the event that the buyer (Applicant) is unable to make payment on the purchase, the Beneficiary may make a demand for payment on the bank. The bank will examine the Beneficiary's demand and if it complies with the terms of the letter of credit, will honor the demand.