A Letter of Credit (LoC) is a financial document issued by a bank that guarantees payment to a seller on behalf of a buyer. It ensures that the seller will receive the agreed amount as long as they meet specific conditions outlined in the letter, such as providing certain documents. This instrument is commonly used in international trade to reduce risks for both parties. The buyer's bank assures the seller that payment will be made, while the seller can trust that they will be compensated once they fulfill their obligations, making transactions smoother and more secure.