Documentary letter of credit

The documentary letter of credit is the most usual payment method in international trade. This instrument offers to the seller an irrevocable payment undertaking from the bank, and , at the same time, offers to the buyer the certitude that the payment will be effected only against certain documents that certify merchandise delivery.

Documentary letters of credit are separate obligations independent of the underlying transaction; the banks negotiate documents and pay against the presentation of the documents exactly as stipulated in the L/C, and not against goods.

It is mandatory that the documentary letters of credit be subject to Publication 500 of the International Chamber of Commerce, Paris.

Standby Letter of credit has the functions of a bank guarantee.