How to Request a Letter of Credit From Your Creditor

When a person enters into a contract to purchase a large volume of goods or an extensive service such as land development, the seller, developer or service provider may request a letter of credit. A letter of credit acts as an insurance policy for the seller or developer. It allows the seller either to collect payment from the bank or creditor directly or to seek payment if the contracting party defaults on the payment.

Instructions

1

Select a bank or creditor with which you have a positive history. If you maintain large accounts with a bank or have taken out loans from a bank without default, select that institution to request a letter of credit. Avoid institutions with which you have no credit history or a bad credit history.

2

Visit your bank or creditor or mail a written request for a letter of credit. If you make a written request, include your name, company, account number, address, the name and address of the beneficiary (the business or person to whom the letter of credit should be sent) and the amount of credit your bank or creditor guarantees. If you visit your bank or creditor in person, its representative either will ask you a series of questions about your request or will provide a form you must complete.

3

Comply with the banks terms for obtaining a letter of credit. Some banks require that you take out a loan or make a deposit for the entire amount secured by the letter of credit. Other banks and creditors require a partial deposit or collateral. Sign all documentation required by your bank or creditor and keep a copy for your records.