Key Facts
A Letter of Credit (LoC) is a financial instrument issued by a bank or a financial institution that guarantees a buyer's payment to a seller.
It provides security, ensuring both parties have legal and financial protection, and significantly reduces risk for both buyers and sellers in international trade transactions.
Flexible and tailored to meet specific transaction needs and terms.
Process
1. Buyer and seller agree on a transaction
2. The terms of the Letter of Credit are set
3. The buyer applies for a Letter of Credit with Spark
4. Spark connects the buyer with the appropriate Letter of Credit provider
5. The provider issues the Letter of Credit
6. The Letter of Credit is sent to seller’s bank
Types
Documentary Letter of Credit - facilitates trade by ensuring direct payment for transactions.
Standby Letter of Credit - serves as a safety net, used only in cases of non-payment or non-performance.
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