Document background
Letter of Credit Financing is a critical financial instrument widely used in international trade transactions to mitigate payment risks between buyers and sellers. This document type is particularly relevant when parties are operating across different jurisdictions and need a secure payment mechanism. In the United States, Letters of Credit are governed by Article 5 of the Uniform Commercial Code and typically follow the International Chamber of Commerce's UCP 600 guidelines. The document outlines the conditions for payment, required documentation, timeframes, and obligations of all parties involved. It is commonly used when there is a need for a third-party (typically a bank) to guarantee payment in a transaction, providing security to the seller while offering the buyer assurance that payment will only be made when specified conditions are met.
