What is a Documentary Letter of Credit?

A documentary letter of credit is a bank’s promise to pay a seller on behalf of the buyer as long as the seller complies with precisely defined terms and conditions specified in the credit. Parties of the transaction are the applicant, beneficiary, and assurance of payment. The applicant is the buyer of goods, the beneficiary is the seller of goods, and assurance of payment is the bank that substitutes its credit for that of the buyer. Minimum terms, conditions and information are needed to be agreed upon between the Applicant and Beneficiary for the Applicant’s bank to issue the Credit to the Beneficiary. To understand this further, we should acquaint ourselves with the documentary collection, the documentary collection process, and document payment collection.