Letters of credit: overview

This note explains the nature and function of letters of credit (also called documentary credits) and the relevance of the Uniform Customs and Practice for Documentary Credits. It analyses the various roles a bank can take in a letter of credit transaction, the ways in which a letter of credit may provide for payment and the different types of letter of credit that may be issued. It also summarises the key considerations for buyers, sellers and banks when considering entering into a letter of credit transaction.