A letter of comfort is a form of financial assurance from one party to another. It is a document that acts as a guarantee that an obligation will be fulfilled, but does not actually constitute a legally binding agreement. This can be beneficial for both parties in certain circumstances, as it can provide a certain level of assurance without the strict terms and conditions of a legally binding agreement.

The letter of comfort usually contains vague wording that prevents the issuer from being held to any specifics. It will generally cover topics such as non-competition, confidentiality, or compensation that one party may need to fulfill if the other party terminates a deal. It can also provide an assurance from a parent company to its subsidiary, to assist the subsidiary in obtaining credit or financing.

In some cases, the letter of comfort is acceptable for a company or organization to use in the event of a breach of a contract. Companies and organizations with limited resources may feel more secure and confident with the level of assurance a letter of comfort provides, without having to go through the extensive and expensive process of legal action. Additionally, a letter of comfort can be used to provide assurance that a project, such as a new product launch, will proceed as planned.

Furthermore, a letter of comfort can also be used to reassure and provide confidence to a party that is not a direct party to a contract. This can prove to be very useful if, for example, a parent company or investor is overseeing a contract, since the letter of comfort would provide assurance that the parties involved in the agreement will uphold their obligations.

Overall, a letter of comfort is a useful document for many different types of transactions, as it can provide a certain level of assurance that an obligation will be met without the formality of a legally binding agreement. It can be used as a convenient alternative in certain types of business transactions, especially those with limited resources.