Letter of credit can be defined as a guaranteeing letter from bank that buyer used to make a payment to seller on the time with the correct amount. Let say the buyer fail to make a payment on the purchase, by using a letter of credit, bank will cover the amount of purchase. Usually, this letter are often used in international transactions to ensure that the payment will be received. The letter of credit become a significant in international trade due to the nature of international dealings such as distance and differing laws in each country. In terms of international trade, the bank will be act on behalf of the buyer in order to ensuring that the supplier will not be paid until the bank receives a confirmation that the goods have been shipped.
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