Question

Why does an exporter need 'Letter of Credit'?

Answer 1

Letter of credit is a document which is issued by the importer's bank to the exporter and shows an undertaking that it will honour payment up to a certain amount of export bills. Letter of credit has very high relevance in foreign trade because the exporter may not know the importer's creditworthiness and there may be a default in payment. So for the security of payments it is required.