Jurisdiction(s):
United Kingdom

Key definition

Letter of credit definition

What does Letter of credit mean? In legal practice, a letter of credit (documentary credit) is a bank’s independent promise to pay a beneficiary once the beneficiary presents the documents specified in the credit, irrespective of disputes under the underlying sale or contract. Requested by the applicant (usually the buyer) and issued by an issuing bank, it may provide for payment at sight, acceptance and payment of drafts (bills of exchange), deferred payment, or negotiation; a confirming bank may add its own undertaking. There is no statutory definition in the UK or Ireland. Letters of credit operate under their contractual terms and, in most transactions, the...

Commercial letters of credit: key types, confirmations, payment options, negotiation, transferability and revolving features (UCP 600)

Published by a LexisNexis Banking & Finance expert

Practice notes

Commercial letters of credit

Commercial letters of credit (often called traditional letters of credit or L/Cs) operate as a means of payment in both cross-border and domestic trade. For a general overview of commercial letters of credit, see Practice Note: Characteristics of commercial letters of credit. In its most straightforward form, a commercial Letter of Credit is a bank’s promise (the issuing bank) to pay the Beneficiary (usually the seller) a fixed amount within a stated period when stipulated documents are presented in compliance with the credit’s terms—for example, the shipping paperwork for the Goods sold to the buyer. There are multiple variants of commercial letters of credit, each bringing particular benefits and drawbacks. From a seller’s perspective, where payment under a sale contract is to be made by letter of credit, irrevocable, confirmed credits with payment at sight are the most favourable. The Uniform Customs and Practice for Documentary Credits (the UCP) is incorporated into most commercial credits and may influence how a given credit type operates...

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Web page updated on 22/05/2026

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