A letter of credit is issued by a bank in the buyer's country.

A letter of credit is commonly known as a letter of credit where the buyer and seller agree in advance on the terms and conditions of the transaction, such as the name of the product, the quantity, the quality standard, the price, the delivery time and so on. Then the buyer to find a bank (usually the buyer's bank, or a certain guarantee) as a "middleman", these trading conditions submitted to the bank, the bank according to issue a document as the basis of the transaction between the buyer and seller.

The bank's responsibility as an intermediary is to monitor the transaction. The seller prepares the goods for shipment according to the document, and then delivers the full set of documents representing the goods to the bank. After the bank has reviewed the documents for accuracy, it pays for the goods directly.

Expanded Information:

The most basic of letters of credit generally have four related parties:

1, the importer: responsible for their own depositary bank to apply for the opening of the letter of credit, called the letter of credit applicant.

2, the importer's bank is responsible for the opening of the letter of credit and review of documents, disbursement of funds, called the letter of credit issuing bank.

3, the exporter is responsible for shipping under the letter of credit, enjoy the letter of credit guaranteed payment, called the letter of credit beneficiary.

4, the exporter's bank is responsible for the exporter to receive the letter of credit, transfer documents and contact with the issuing bank, called the notifying bank.

In addition, the bank ultimately responsible for the allocation of the bank is called the letter of credit reimbursement bank, generally is the issuing bank; can also be advanced by another bank and charge a small fee, called the letter of credit negotiation bank, generally is the notification bank.

Baidu Encyclopedia - Letter of Credit