Letterofcredit 1

The documentary letter of credit (also known as a documentary credit) has been used for more than 150 years to facilitate trade by providing payment against presentation of documents relating to the transaction as specified in the credit. They are used widely for international trade, covering transactions valued from as little as a few hundred Dollars to many millions. They are used primarily at the request of the commercial parties for effecting payment; they may also be used because some importing countries require letters of credit as part of their exchange control regulations. 

Other than cash in advance, a letter of credit is the most secure method of payment in international trade, with the payment undertaking of the bank, as long as the terms of the credit are met. The letter of credit also provides security for the importer who can ensure all contractual documentary requirements are met by making them conditions of the letter of credit.