Advanced English Dialogue for Business – Letter of credit

Listen to a Business English Dialogue About Letter of credit

Abigail: Hey Terry, do you know what a letter of credit is in business?

Terry: Yes, Abigail, I do. A letter of credit is a financial document issued by a bank on behalf of a buyer, guaranteeing that payment will be made to the seller upon the completion of specific conditions.

Abigail: That’s right. Can you explain how a letter of credit works in practice?

Terry: Sure, Abigail. When a buyer and seller agree to use a letter of credit, the buyer’s bank holds the funds until the seller meets the agreed-upon terms, such as providing proof of shipment or delivery of goods.

Abigail: I see. What are some common uses of letters of credit in business transactions?

Terry: Well, Abigail, letters of credit are often used in international trade to mitigate the risk of non-payment, ensuring that sellers receive payment for goods shipped to buyers in foreign countries.

Abigail: That makes sense. Are there different types of letters of credit?

Terry: Yes, Abigail. There are various types, including revocable and irrevocable letters of credit, as well as standby letters of credit, each with specific terms and conditions depending on the needs of the parties involved.

Abigail: Interesting. How do banks assess the creditworthiness of parties involved in a letter of credit transaction?

Terry: Banks typically evaluate the financial standing and reputation of both the buyer and seller before issuing a letter of credit to ensure that they can fulfill their obligations under the terms of the agreement.

Abigail: Thanks for explaining, Terry. It’s fascinating how letters of credit facilitate secure transactions in the global marketplace.

Terry: Absolutely, Abigail. They play a crucial role in reducing risks and providing assurance to parties involved in international trade.