A letter of credit 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. This is commonly used in international trade to reduce risks for both parties. When a buyer requests a letter of credit, the bank assesses their creditworthiness and issues the document. The seller can then present the required documents to the bank to receive payment. This process helps facilitate trust and security in transactions between unfamiliar parties.