Letter of Credit
A Letter of Credit (LC) is a financial instrument issued by a bank or financial institution that guarantees payment to a seller (beneficiary) on behalf of a buyer (applicant) in international trade transactions, provided that the seller meets specified terms and conditions. It serves as a secure payment mechanism, reducing risk for both parties by ensuring that payment is made only upon presentation of compliant documents, such as shipping bills or invoices. LCs are commonly used in cross-border trade to mitigate risks like non-payment or delivery issues.
Developers should learn about Letters of Credit when working on financial technology (fintech) applications, supply chain management systems, or international e-commerce platforms that involve payment processing and trade documentation. Understanding LCs is crucial for implementing features like automated document verification, payment guarantees, and compliance checks in software that handles global transactions, as it helps ensure secure and reliable financial operations in high-risk environments.