Film Accounting Glossary
Letter of credit
What is a letter of credit?
Also called LC, or L/C.
A letter of credit is a bank's undertaking to pay a beneficiary if defined conditions are met, used in production as security for a location, a foreign vendor, a completion obligation, or a residuals reserve.
It ties up the production's credit capacity even though no cash moves unless the letter is drawn. Fees are modest but real, and expiry dates need tracking, because a letter that lapses mid-shoot can stop a location.
Example
A location owner accepts a $75,000 letter of credit instead of a cash deposit. No money moves, but the show's credit capacity is tied up for the term, and if the letter expires before the location wraps, the shoot day is at risk.
Figures are illustrative, chosen to show the mechanics rather than to quote market rates.
Where you'll see it
Used as security for locations, foreign vendors, completion obligations, and residuals reserves. Expiry dates need tracking against the schedule.
Common mistake
Not tracking the expiry against the schedule. A letter that lapses mid-shoot puts a location or a vendor relationship at risk on a purely administrative failure.
Related questions
- When does a production use a letter of credit?
- As security instead of a cash deposit: for locations, foreign vendors, completion obligations, or a residuals reserve.
- Does a letter of credit cost anything if it is never drawn?
- Yes. The bank charges a fee and the facility ties up credit capacity for its whole term, even though no money moves.