Glossary
Documentary Credit
A letter of credit issued by a bank on behalf of the buyer, guaranteeing payment to the seller upon presentation of compliant shipping documents.
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What does Documentary Credit mean?
A Documentary Credit, also known as a letter of credit (L/C), is a financial instrument commonly used in international trade transactions to provide payment security for both the buyer (importer) and the seller (exporter). It is issued by a bank on behalf of the buyer and serves as a guarantee of payment to the seller once specified conditions are met.
The documentary credit outlines the terms and conditions under which the payment will be made, such as the shipment details, the documents required for payment, the expiration date, and any specific requirements for the goods or services being traded. By using a documentary credit, the buyer can ensure that payment is made to the seller only after the required documents and goods are presented as per the terms of the credit.
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