ABSTRACT
A letter of credit is an arrangement between two banks. A bank in the country of the purchaser, the opening bank, will set up an arrangement with a bank in the country of the contractor, the paying bank, at the request of the purchaser. The terms of the arrangement will be set out in writing. The process is straightforward. The purchaser will ask a bank, usually a large national or international bank to set up/open a letter of credit in the name of the contractor and with an appropriate bank in the contractor's country. The letter of credit will instruct/request the paying bank to pay the amount, or amounts, stated in the letter to the contractor when, and only when, the contractor has complied precisely with the terms set out in the letter. Trade/delivery terms provide for the point at which the goods are to be delivered by the supplier, and the responsibilities of the contractor relating to that delivery.
