Definition – A letter of credit is a bank issued document guaranteeing the buyer’s payment of a specified amount in a specified currency to the seller provided the defined conditions are met and the prescribed documents are submitted. Required documents may include a bill of lading, commercial invoice, packing list, and certificate of origin.

History – The name “letter of credit” derives from the French word “accréditation,” a power to do something, which derives from the Latin “accreditivus,” meaning trust.