Using a financial instrument called a Letter of Credit to guarantee payment between a buyer and a seller in a transaction is standard procedure when doing business worldwide.

Here’s how it works for a Letter of Credit issued by the seller’s bank to the acquiring bank.

The terms of the transaction, including price, delivery date, and goods or services to be traded, have been agreed upon by both the buyer and the seller.
The buyer requests a Letter of Credit from the bank, which ensures that the buyer will pay the seller for the goods or services.
The bank will often want collateral or security from the buyer before issuing the Letter of Credit.
The seller’s bank checks the letter at the buyer’s bank to ensure it satisfies the requirements of the commercial transaction.
When the seller sends the required paperwork to the bank and then ships the products to the buyer or provides the services to the customer, the invoices, bills, and other financial records are included.

When everything is in order, the bank representing the seller will forward the documentation to the bank representing the buyer.
The buyer’s bank reviews the paperwork, and if everything checks up, the buyer’s bank pays the vendor.
The onus then shifts to the buyer to make any required bank repayments, which may include interest or other charges.
As a whole, a Letter of Credit can calm nerves during an overseas sale. This increases the likelihood that the transaction will be completed and reduces the danger of not being paid for.