Documentary Credit

A documentary credit, or letter of credit, is a financial agreement used in international trade where a bank guarantees payment to a seller on behalf of a buyer, provided the seller meets specific documentation requirements. It reassures both parties: the seller that they will receive payment if they present the correct shipping and transaction documents, and the buyer that payment will only be made once the seller fulfills the contractual obligations. This mechanism helps manage risks in global transactions by providing a secure, documented method of payment that builds trust between parties unfamiliar with each other.