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 their payment as long as they meet the specified terms and conditions outlined in the letter. This is commonly used in international trade to reduce the risk of non-payment. When a buyer requests a letter of credit, their bank evaluates their creditworthiness and issues the document. The seller can then present the required documents to their bank to receive payment. This process helps build trust between parties in a transaction.