Do you buy and sell regularly on the international market? If so, you'll know all about the delicate period between the placing of an order, delivery of the goods and payment. If you're the supplier, you naturally want to be paid as quickly as possible. And if you're the purchaser, you expect to receive the goods as ordered and within the agreed period.
Documentary credits square that circle. They are an instruction to the purchaser's bank to pay the supplier as soon as a series of conditions have been met. They offer both parties a guarantee that the initial transaction will be completed in the agreed manner.
Once issued, documentary credits can't be revoked: the payment commitment cannot be modified or cancelled without the vendor's consent. Documentary credits might be confirmed by a second bank, mostly located in the vendor's country, which adds its own, independent undertaking, in terms identical to those of the bank that issued the credit. This ‘confirmed' credit provides the vendor with maximum security.