What is a primary benefit of using the letter of credit method of payment?

Using a letter of credit as a method of payment provides significant advantages in international trade, particularly through its ability to establish trust between parties in a transaction. A letter of credit is a financial document issued by a bank on behalf of a buyer, guaranteeing that payment will be made to the seller, provided that the seller meets the specified conditions outlined in the letter. This assurance serves to reduce the risk for both parties, especially the seller, since they have a reliable guarantee of payment once the agreed-upon conditions are fulfilled. This fundamentally increases confidence and facilitates smoother transactions, making international trade more secure.

The other options, while they may have some relevance in specific contexts, do not capture the primary benefit as effectively as the emphasis on trust and risk reduction. For instance, while a letter of credit can facilitate cash flow, the mechanism doesn't provide instant cash flow directly; it ensures payment upon compliance with terms rather than an immediate infusion of cash. Additionally, the letter of credit does not directly relate to international taxes, as its primary role revolves around payment assurance and not tax facilitation. Thus, the option focusing on trust and risk mitigation aligns most accurately with the core benefits of using a letter of credit in international business.