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Foreign Currency Services

Letters of Credit

If your business does any volume of importing and/or exporting, Letters of Credit are an important payment mechanism to understand.

We can help you understand the basics here, but for a more detailed discussion, tailored to your needs, you may want to consider contacting a Small Business Specialist at a TD Canada Trust branch.

You can also learn more by taking our online Crash Course in International Trade, which offers more information, including the mechanics of a Letter of Credit.

The basics

What is a Letter of Credit?

A Letter of Credit, simply defined, is a written instrument issued by a bank at the request of its customer, the Importer (Applicant), whereby the bank promises to pay the Exporter (Beneficiary) for goods or services provided that the Exporter presents all documents called for, exactly as stipulated in the Letter of Credit, and meets all other terms and conditions set out in the Letter of Credit. A Letter of Credit is also commonly referred to as a Documentary Credit.

Note: In the diagram below, the Advising Bank is also acting as the Confirming Bank.

Visit a TD Canada Trust branch or ask one of our TD Canada Trust Small Business Specialists for more information.