Letters of Credit Policy

Organizations can use this policy template to document the process for handling requests by U.S. operating units for letters of credit (LC) as part of domestic and international trade.

Under this policy, the company endorses the use of letters of credit to mitigate inherent weaknesses of negotiating with a customer on an open account basis. A letter of credit is an instrument whereby a bank, on behalf of its customer, undertakes to pay a certain sum of money within a specified time if the terms of the LC are satisfied by the beneficiary. One potential benefit is that it mitigates the political and fiscal risk of the customer’s or supplier’s home country.