Documentary Letters of Credit
Is a sales contract between a buyer and a seller where the banks for both parties
are involved in the contractual arrangement to protect their customers by adding
I. Provides specific transactions with an independent credit backing and a clear
cut promise of payment.
II. Satisfies the financing needs of the seller and the buyer by placing the bank's
III. Reduces or eliminates the commercial credit risk since payment is assured by
the bank which issues an irrevocable documentary credit.
IV. The seller no longer needs to rely on the willingness and capability of the
buyer to make a payment.
V. Expands source of supply for buyers since certain sellers are willing to sell
only against cash in advance or a Documentary Credit.