The letter of credit (LC) is an obligation that banks have to your company if certain conditions set forth in the LC are met," said Robert Mercer, Esq. of law firm Powell Goldstein, LLP. "This is an attempt to isolate your company from the customer."

Mercer, a partner at Powell Goldstein's Atlanta office who practices in its Bankruptcy & Financial Restructuring Group, discussed LCs and the best ways to structure them at a recent NACM teleconference entitled "Structuring Letters of Credit That Won't Leave You Stranded in a Customer Bankruptcy." Over the course of his presentation, Mercer outlined common stipulations that creditors should include as well as some that they should avoid when drafting their LCs.