Difference between letter of credit and letter of undertaking
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A letter of credit is a letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount. In the event that the buyer is unable to make payment on the purchase, the bank will be required to cover the full or remaining amount of the purchase.
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A Letter Of Undertaking, or LOU is a document issued by a bank to a person or a firm. This LOU is generally used for international transactions and is issued keeping in mind the credit history of the party concerned. The party can then avail Buyer's Credit against this LOU from a foreign bank.
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