Imagine a normal sale scenario where the buyer and seller are involved. The buyer would make the cash payment first then the seller would be dispatching the goods. This would generally happen when the buyer has cash at his disposal. But imagine a scenario where buyer does not have cash but in need of goods and seller not ready to give credit just by looking the face of the buyer.
There comes the role of letter of credit. In order to understand the letter of credit we should understand all the three parties involved.
Party 1 - Seller
Party 2 - Buyer
Part 3 - Banker
Continue with this video Lecture to understand in depth: