Letter of credit

A letter of credit is an independent bank undertaking, usually issued at a buyer’s request, to pay the seller or another beneficiary when stipulated documents are presented in conformity with its terms. It separates payment from the underlying sales contract, so banks examine documents rather than goods. In Switzerland, letters of credit are common in international trade finance and are heavily influenced by internationally used rules and banking practice. Disputes often concern document compliance, fraud exceptions, reimbursement, and sanctions or regulatory constraints.