A letter of credit is a document issued by a bank on behalf of a buyer committing to pay a seller on time and for the correct amount for goods purchased. Very specific terms and conditions are outlined for the seller in the letter. It is important to know the credit risk of the issuing bank as well as the political and economic risk of the country the bank is located in. Letters should include a reference to the 1993 International Chamber of Commerce (ICC) Uniform Customs & Practices for Documentary Credits. The ICC is the arbitrator is disputes. Verification is critical in accepting a letter of credit. Differences in personal opinions and questions of interpretation result in the nonpayment of 60-70 percent of letters of credit in their first presentation. Irrevocable - A letter of credit that cannot be amended or cancelled without prior mutual consent of all parties to the credit. Revocable - A letter of credit that can be cancelled or altered by the drawee (buyer) after it has been issued by the drawee's bank. Transferable - A letter of credit that can be redirected at the sellers request. Sight - A letter of credit that requires payment to be made upon presentation of documents. Time Draft - A letter of credit that states payment is due within a certain time (usually 30, 60, 90, or 180 days).

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