What Is a Letter of Credit?
A Letter of Credit is a special type of bank guarantee that confirms the bank's promise to pay the seller (beneficiary) on behalf of the buyer (applicant) a specified amount of money that covers the purchaser's contractual obligations. If you are looking for a Letter of Credit template suitable for your situation, you may check out our library below.
Whether the parties engage in international trade where the goods are delivered for a certain sum of money or there is a performance transaction and the contractor must work on a building project, a Credit Letter serves as a guarantee that both parties intend to carry out their contractual duties and are prepared to enlist the support of a financial institution to show their goodwill.
Credit Letter Types
Below you can find the most commonly used Letter of Credit templates - ensure the full and timely payment to the beneficiary of the contract and build a trusting relationship with your business partner.
- Generic Letter of Credit. This is a generic template you can prepare for any occasion whether the transaction you need to secure is small or large, domestic or international.
- Standby Letter of Credit. Clients can benefit from this secondary payment option that safeguards the interests of the seller in case the purchaser can no longer make payments.
- Irrevocable Letter of Credit. Quite similar to the document above, this bank guarantee cannot be modified by the choice of one of the parties or the bank.
How to Write a Letter of Credit?
Each document is unique, and it is up to the bank to determine which provisions are listed in the final version of the letter. However, at a minimum, consider including the following details in your Letter of Credit:
- Identification of the bank, beneficiary, and applicant.
- Description of the original contract between the parties that will be covered by the credit and a short reference to the contractual obligations that must be fulfilled.
- The unequivocal promise of the bank to pay on behalf of the breaching party - here you can choose which events and notifications trigger the payment.
- The expiration date of the bank offer to secure the payment.
- A Letter of Credit fee - generally, paid by the seller.
- Signatures of the parties.
Haven't found what you're looking for? Take a look at the related templates below:
This letter, issued primarily by banks, is used in trade finance and provides an irrevocable payment undertaking.
This letter is a legal instrument that secures a bank's commitment to pay the seller in the event that the buyer (the client of the bank) defaults on the agreement.