Legal Definitions - time letter of credit

A time letter of credit is a type of letter of credit, which is a commercial instrument issued by a bank at the request of a customer. The bank agrees to pay a third party, known as the beneficiary, as long as certain conditions are met. The time letter of credit is different from other types of letters of credit because it is only honored by the issuer accepting drafts drawn under it.

For example, if a company in the United States wants to buy goods from a company in China, they may use a time letter of credit. The Chinese company would ship the goods and then present a draft to their bank, which would then be sent to the American company's bank for acceptance. Once the draft is accepted, the Chinese company would receive payment.

Another example would be a construction project where a contractor is required to provide a time letter of credit to guarantee their work. The bank would only pay out if the contractor fails to complete the project according to the agreed-upon terms.