How do parties engaged in international trade ensure adherence to contracts when enforcement of international contracts is weak? I argue that reputational mechanisms arising from repeated interaction can provide a substitute for formal contract enforcement. I develop a dynamic model of international trade in which exporters and importers are matched with the search technology of Diamond, Mortensen and Pissarides. Importers can renege on payment after the receipt of a shipment, but the threat of

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... the exporter refusing to participate in future trade can provide some informal enforcement. In addition, the possible exclusion from trade of the importer by future potential partners provides additional encouragement to pay. However, if trade is infrequent or information of past behavior disseminates poorly to potential new partners, this might be insufficient to fully overcome weak international contract enforcement. In such a case, a bank can provide additional insurance by providing guarantees -letters of credit -for multiple importers. The bank's additional credibility is endogenously derived from increasing returns to credibility in size, as more frequent interaction and more partners make reneging on payment more costly for the bank than individual importers. I consider the alternative contract of payment before shipment, and show that the relative merit of the two types of contract depends crucially on relative size of partners and the ease with which news of non-payment is spread. I show that intermediary trading companies can provide an analogous role to banks by credibly guaranteeing the quality of shipments. JEL codes: C73, D83, F12, G21, L11, L14