The documentary credit is a financial instrument for payment that differs from a free transfer in that it mitigates the risks borne by the parties in a transaction.
The documentary credit is independent of the contract of sale or any other contract.
In trade, the buyer often pays in advance, in which case they take the risk of not receiving delivery on time or the quality of the goods not being as agreed. In other cases, the seller first dispatches the goods and then awaits payment, taking the risk of the payment being late or there being other issues with it.
The documentary credit is an irrevocable undertaking by the issuing bank to pay the seller if the seller complies with the terms of the documentary letter. In order for the issuing bank to make the payment, the beneficiary (seller) must present the stipulated documents as proof that the goods have been delivered within the time frame and in the manner specified in the documentary credit.
The banks deal only with documents and not with goods, services, customs, carriers, freight forwarders, etc.
If you frequently require bank guarantees and/or documentary credits, you may apply for a credit line for their issuance or for a framework agreement for financing.