Letters of Credit: Exploring the Documents

A letter of credit is a document that operates as a payment method whereby parties doing business can enhance the likelihood of payment (typically for goods) through obtaining a form of payment guaranty from a financial institution. The goal of this lesson is to introduce the basic documents involved in a letter of credit transaction by studying one particular transaction. We will look at the regulations governing letters of credit, namely UCC Article 5 and the Uniform Customs and Practices 600. In particular, we will look at the issuance of the letter of credit in our case and develop an understanding of the documents and parties involved in these transactions.