Document background
The LC Letter of Credit is a fundamental instrument in international trade finance, particularly crucial for transactions where parties seek security and risk mitigation. Under U.S. jurisdiction, primarily governed by UCC Article 5 and complemented by international practices (UCP 600), this document serves as a bank's irrevocable promise to pay on behalf of a buyer. It's typically used when parties are in different countries, when they don't have an established trading relationship, or when regulatory requirements mandate its use. The document includes critical details such as payment terms, document requirements, shipping conditions, and compliance criteria. Letters of Credit are particularly valuable in high-value transactions or when dealing with new trading partners, offering protection to both buyers and sellers by ensuring that payment will only be made upon presentation of compliant documents evidencing the completion of the specified transaction.
