Guide

Letters of credit

Introduction

Trading internationally can involve risks. Exporters run the risk of buyers failing to pay for goods, while importers may risk paying but never receiving anything. Because of the distances involved, it may be difficult to resolve any disputes.

One way of reducing the risks is to use a letter of credit. This can offer a guarantee to the seller that they will be paid, and the buyer can be sure that no payment will be made until they receive the goods.

There are several different types of letters of credit available to use, depending on the circumstances.

This guide explains what letters of credit are, how they work, and when you might consider using one. It looks at some of the drawbacks of using a letter of credit and explores some possible alternatives. It also explains the international rules that govern most letters of credit.