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Glossary - Letter of Credit (L/C)

[Logs] The Letter of Credit is a transactional financial tool that two parties use to ensure the credible transfer of a large amount of funds in exchange for goods, such as lumber or timber, only after those goods have been delivered to their destination.  Additional terms such as irrevocable, unconditional, and trasferable are often used in reference to the L/C.

Banks are also usually key participants in this process, and play an important role throughout the process, especially for international arrangements.  The buyer's bank is called the "Opening bank" (or "Issuing bank"), and the seller's bank is called the "Closing bank."  Other important conditions may also be present in these transactions, such as adherence to government regulations, working agreements containing non-circumvention and non-disclosure clauses, and identifying the third-party inspector(s) who will physically verify (to the opening bank) that the product(s) arrived as expected at their destinations.

Since this process is complicated, and involved many contractual and regulatory aspects, it is very wise to hire a qualified lawyer to ensure the entire process is executed correctly.

See also

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