A Letter of Credit is a standard tool for international transactions. A letter of credit (LOC) is issued by a foreign bank (representing the buyer) and confirmed by a corresponding bank usually in the country of the seller. The LOC is the buyer's bank's commitment to pay for goods sold.

A Letter of Credit is literally a 'letter' that describes a sales transaction between a buyer and seller. The 'letter' is offered by the buyer to the seller. This mechanism allows the buyer to establish his ability to pay for goods purchased and the seller to have assurance that his bill for goods will be paid. Letters of credit are handled through banking institutions.