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

Examples of letter of credit in a Sentence

Recent Examples on the Web

As a result, Weisbrot said surety companies want liquid assets as collateral, specifically cash or a letter of credit, and not hard assets like real estate. —Katrina Kaufman, CBS News, 25 Mar. 2024

By contrast, previous federal programs required either a letter of credit or a match but not both, the letter from advocates said. —Jon Brodkin, Ars Technica, 6 Sep. 2023

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