Commercial Letters of Credit

Summary

This practice note generally describes commercial letters of credit, also referred to as documentary or trade letters of credit, often used to make payments in sale of goods or services transactions and particularly used in cross-border transactions. This practice note discusses the roles of the parties, commercial letter of credit processes, and common commercial letter of credit terms and documentation. This practice note also provides guidance on the structure of commercial letters of credit, the independence principle governing letters of credit, and the application of the Uniform Customs and Practice for Documentary Credits (UCP) and the Uniform Commercial Code (UCC).