A letter of credit is an irrevocable undertaking issued by a bank (issuing bank) on behalf of the buyer (applicant) to the seller (beneficiary), to pay for goods and/or services, provided that the seller presents documents which comply fully with the terms and conditions of the credit. It is commonly referred to as a letter of credit or documentary credit.
A letter of credit is issued in an irrevocable format, which means that payment is guaranteed provided its terms and conditions are complied with. It also means that it cannot be cancelled or amended unless all parties agree. All letters of credit are issued subject to universally accepted rules and regulations issued by the International Chamber of Commerce in Paris. These rules are referred to as the UCP600, ISBP745E, ISP98 and URR725.