What Is a Letter of Credit? A letter of credit, also called an L/C, or simply called a credit, is a written undertaking by the issuing bank given to the seller (exporter or beneficiary), at the request of the buyer(importer or applicant), to pay at sight or at a future date a stated sum of money. The L/C is only valid for a stated period time, which will become useless after the expiration date. The L/C is payable upon presentation of stipulated documents. The issuing bank is substituting its credit for that of the buyer. The letter of credit is a promise by the bank to pay the seller when the seller has met conditions stipulated in the letter of credit. Payment by a letter of credit is a kind of bank credit instead of commercial credit. There are quite a few kinds of credits used in international payment. Different credits serve different functions and have different features. Letters of credit may roughly fall into two major categories: common or standard letters of credit and special letters of credit. Special letters of credit include revolving credits, standby credits, transferable credits, red clause credits and back-to-back credits.