letter of credit
noun phrase
1
: a letter addressed by a banker to a correspondent certifying that a person named therein is entitled to draw on the writer's credit up to a certain sum
2
: a letter addressed by a banker to a person to whom credit is given authorizing drafts on the issuing bank or on a bank in the person's country up to a certain sum and guaranteeing to accept the drafts if duly made
Word History
First Known Use
1616, in the meaning defined at sense 1
Legal Definition
letter of credit
: a document issued to a beneficiary at the request of the issuer's customer in which the issuer (as a bank) promises to honor a demand for payment by the beneficiary in order to satisfy or secure the customer's debt compare guaranty
Note: A letter of credit is usually requested by a buyer of merchandise (the issuer's customer) to be issued to the seller (the beneficiary) in order to secure the payment for the merchandise.
— commercial letter of credit
: a letter of credit which is used to satisfy payment for merchandise and which usually requires the beneficiary to present a draft and some documentary proof (as of shipment or receipt of the merchandise) when making a demand for payment
— irrevocable letter of credit
: a letter of credit which the issuer cannot revoke or modify without the consent of the issuer's customer or the beneficiary
— standby letter of credit
: a letter of credit which is used to secure payment in case of default by the issuer's customer and which requires the beneficiary to present some documentary proof of such default when making a demand for payment