What Are Letters of Credit?

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August 22, 2013

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Letters of credit have been used for centuries to ease payment in international trade. A letter of credit is a promise to pay. Banks issue letters of credit as a way to ensure sellers that they will get paid as long as they do what they’ve agreed to do. The bank will only issue a letter of credit if they know the buyer will honor payment. Sellers must trust that the bank issuing the letter of credit is legitimate.

To pay on a letter of credit, banks simply review documents proving that a seller performed his required actions. They do not worry about the quality of goods or other items that may be important to the buyer and seller. Letters of credit are common in international trade because the bank acts as an uninterested party between buyer and seller.

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To learn more about using letters of credit to fund your business, contact a Nevada Corporate Headquarters representative today at 1-800-508-1729.

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