Credit letters are the commercial documents which are issued generally by financial institution. This type of letter is primarily used in trade finance. The origin of the term comes from the word 'accreditation' which is a derivative of the Latin word 'accreditivus' which means trust. Almost all of the credit letters are irrevocable that means they cannot be amended or canceled without prior agreement of the beneficiary. It acts as a legal document also. The language of the letter should be very clear and far away from confusion. It is used in international transaction to eliminate the risk of unfamiliarity with foreign country, customs or political instability. The credit letters are of much worth and can ruin a company if not drafted correctly. You should be very careful in selection of words. Do not use flowery language. Read and reread the letter before sending or issuing it.
Letter of credit is often used in international transactions to ensure that the payment will be received. As the laws of each country can be different, it is difficult to draft a credit letter.
Let us see what the things are, apart from the legalities which are to be remembered while drafting a credit letter.
Maintain the decorum of a formal letter by not using bold colors, stylish fonts and designer borders. As a company, organization a credit letter must be written on a letter head with a signature of a concerned person. |
See more types of credit letters: