Export Letter of Credit Law and Legal Definition

Export letter of credit means a commercial letter of credit issued by a foreign bank in favor of a domestic exporter at the request of a foreign buyer. The benefits associated with export letter of credit include improvement in cashflow management, extended payment terms, hedge currency exposures, and prevents insurance costs. The purpose of an export letter of credit is two-fold: first, the export letter of credit virtually eliminates any credit risk assumed by nonpayment for the goods sold; and second, it ensures a line of credit to finance business with borrowed money.