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Simple English definitions for legal terms
clean letter of credit
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A quick definition of clean letter of credit:
A clean letter of credit is a document issued by a bank that promises to pay a third party (the beneficiary) if they meet certain conditions, regardless of whether the original agreement between the customer and beneficiary is fulfilled. It is called "clean" because no documents need to be presented along with it. This type of letter of credit is often used in international transactions to ensure payment to the seller.A more thorough explanation:
A clean letter of credit is a type of letter of credit that is payable on its presentation without the need for any accompanying documents. It is a commercial law instrument that is issued by a bank at the request of a customer, and it guarantees payment to a third party beneficiary as long as the draft or demand for payment meets certain conditions.
For example, if a seller in an international transaction requests a clean letter of credit from the buyer's bank, the bank will issue the letter of credit to the seller's bank. The seller can then present the letter of credit to their bank for payment without the need for any additional documents.
Another example is when a bank issues a clean letter of credit to a beneficiary who needs to receive payment for services rendered. The beneficiary can present the letter of credit to the bank for payment without the need for any additional documents.
In summary, a clean letter of credit is a simple and straightforward way to guarantee payment to a beneficiary without the need for additional documentation.