what is a letter of credit 
a letter of credit or a credit letter is a letter from a bank guaranteeing that a buyer s payment to a seller will be received on time and for the correct amount if the buyer is unable to make a payment on the purchase the bank will be required to cover the full or remaining amount of the purchase it may be offered as a facility financial assistance that is essentially a loan due to the nature of international dealings including factors such as distance differing laws in each country and difficulty in knowing each party personally the use of letters of credit has become a very important aspect of international trade to protect buyers and sellers jessica olah investopedia