An obligation issued by a bank on behalf of a bank customer to a third party. A commercial or trade letter of credit is a bank promise to pay the third party for the purchase of goods by the bank's customer. If the bank's obligation to pay is not immediate, the transaction can later give rise to a banker's acceptance.
See letter of credit and banker's acceptance.
Also called commercial letter of credit. American Banker Glossary
Financial and business terms. 2012.