Letter of credit is a mechanism that facilitates international merchandise flows and minimizes its uncertainty. Using this tool the exporters minimize risks of the operation, since the payment will be made by a credit institution which will avoid assessing the payment capacity of an unknown buyer.

Letter of credit can be defined as an agreement under which an issuing bank at the request of a payer and in accordance with their instructions undertakes to make payment to a beneficiary or authorizes another bank to make such payment or authorizes another bank to negotiate with the required documents, provided they have complied with the terms and conditions of the Credit. This mechanism has the functions of the payment instrument and credit guarantee.