LETTER OF CREDITDefinition: The Letter of Credit can be defined as a binding document that a buyer can request from his bank to ensure that payment for the goods is transferred to the seller. Basically, a letter of credit reassures the seller that he will receive payment for the goods. In order for payment to take place, the seller must present the necessary shipping documents to the bank certifying delivery of the goods within a certain period. It is often used in international trade to eliminate risks such as unfamiliarity with the foreign country, customs, or political instability. Letter of Credit Mechanism: Here we assume that the payment will be made by the advising bank. Here we go on to explain the steps:1. Here there is a contract between the exporter and the customer where the need for a Letter of Credit is specified.2. Then the customer requests his bank to issue a letter of credit.3. The customer's bank then issues a letter of credit through the advising bank.4. The consulting bank then conveys the terms of the letter of credit to the exporter.5. The exporter almost always requests changes to the Letter of Credit and copies the requests to the Consulting Bank.6. The customer goes ahead and requests his bank to issue a change.7. Then the amendment is published.8. The change is then recommended to the exporter.9. The goods are then shipped.10. The documents required by the Letter of Credit are presented to the Consultant Bank.11. Payment is then made by the Consultant Bank to the exporter.12. The Issuing Bank's account with the Advising Bank will then be debited.13. The documents are then transmitted to the issuing bank.14. The documents are finally passed to the customer allowing him to use the bill of lading to obtain goods if sent by sea and payment made by the customer to the issuing bank. Customs and Uniform Practice Credits and Documentary Credits (UCPDC): This is a set of universally recognized guidelines governing Letter of Credits. The guidelines are published in brochure form by the International Chamber of Commerce. The first publication was made in 1933. Revised versions were published in 1951, 1962, 1974 and 1983. The latest publication is known as ICC 500 and adopted effective January 1, 1994. The International Chamber of Commerce based in Paris frames the guidelines for the UCPDC. UCPDC has now become indispensable, as letters of credit have become one of the secure methods for international trade agreements. The reason is that sellers are hesitant to release the goods before receiving payment, while buyers feel the need to have more control over the goods before parting with payment..