Legal Definitions - negotiation letter of credit

A negotiationletter of credit is a type of letter of credit that allows for the transfer of funds from the issuing bank to the beneficiary through a third party, such as a bank or financial institution. This type of letter of credit is governed by Article 5 of the UCC and is often used in international trade transactions.

For example, if a company in the United States wants to purchase goods from a company in China, they may use a negotiation letter of credit to ensure that the payment is made to the Chinese company once the goods have been shipped and received. The Chinese company can present the necessary documents to a bank or financial institution in China, who will then transfer the funds from the issuing bank in the United States to the Chinese company.

Another example of a negotiation letter of credit is when a company wants to secure a loan from a bank. The bank may require a negotiation letter of credit as collateral, which allows the bank to transfer funds to the company if they default on the loan.