What is counter credit?

Counter credit is a type of credit arrangement in which a bank issues a letter of credit on behalf of a buyer to guarantee payment to a seller. It is commonly used in international trade transactions where the buyer and seller are located in different countries and may not have an established relationship.

Under a counter credit arrangement, the buyer's bank guarantees payment to the seller upon presentation of certain documents specified in the letter of credit. This provides assurance to the seller that they will receive payment for their goods or services, even if the buyer defaults.

Counter credit arrangements are typically more secure than open account transactions, as they provide a level of protection for both the buyer and seller. However, they can also be more complex and involve additional fees and paperwork.

Overall, counter credit is a valuable tool for facilitating international trade and minimizing the risk of non-payment for both buyers and sellers.