Commercial Letter of Credit Payment Clause
(General Contract)

Summary

This clause is an example of a standard payment provision for inclusion in a general contract for the sale of goods or services that requires payment from a buyer to a seller using a commercial letter of credit. This clause includes practical guidance, drafting notes, and alternate and optional clauses. A commercial letter of credit may be used as a primary payment method to finance an underlying contract for the sale of goods or services. Upon presentation by the seller of the supporting documentation required under the letter of credit, the bank that issues the letter of credit (or a confirming bank if one is used) will make payment directly to the seller, as the beneficiary under the letter of credit. By using the letter of credit, the seller relies on the creditworthiness of the issuing bank for payment, rather than the buyer which may be in a foreign country or be unfamiliar to the seller. Likewise, the buyer does not want to pay the seller in advance for goods or services that may not be as represented or may not arrive as promised. The capitalized terms in this clause must be conformed to the defined terms in the agreement that will include the clause. Number the clause in accordance with the section of the agreement that will include the clause. For a full listing of letter of credit content, see Letter of Credit Resource Kit. This clause should be read in conjunction with Credit Support in Sale of Goods Transactions and Commercial Letters of Credit in Sale of Goods Transactions Checklist. For general guidance on letters of credit, see Letters of Credit: Purpose and Types and Letters of Credit: Parties and Documentation. For a template of a commercial letter of credit, see Commercial Letter of Credit for Domestic Sales Transactions. For general contract payment clauses, see Payment and Collection Clauses.