Because a letter of credit is generally a negotiable instrument, the issuing bank can pay the beneficiary or any financial institution nominated by using the beneficiary. If a letter of credit is transferable, the beneficiary may also assign some other entity, such as a corporate parent or a third party, the right to draw.

Important: Banks usually require a pledge of securities or money as collateral for issuing a letter of credit.

Banks additionally collect a charge for service, typically a percentage of the size of the letter of credit. The International Chamber of Commerce Uniform Customs and Practice for Documentary Credits oversees letters of credit used in international transactions. There are different sorts of letters of credit available.