Commercial Letters Of Credit

Used by companies that import goods from foreign or domestic markets to assure the seller that the purchase price will be paid. A letter of credit is issued by a bank substituting its financial strength in place of the importer's and authorizing the seller to draw drafts on the Bank, provided certain specified terms and conditions are met.
A seller may agree to be paid at a later date (but no longer than 180 days) in which case a "draft" is converted into an "acceptance." At the maturity of the acceptance, the bank customer pays the bank which, in turn, remits the funds to the exporter.