By issuing a documentary credit, the importer's bank commits itself to paying the exporter when the exporter has complied with the conditions of the documentary credit. In this way the exporter is no longer dependent on the importer's ability or will to pay.

The conditions in a documentary credit usually contain a requirement for the presentation of a number of documents, (invoice, transport documents etc.), which must be complied with before payment can take place. You must be aware that banks examine the documents only with respect to the documentary credit and do not look at contracts, agreements or the condition of the goods.

Apart from being a guarantee of payment, a documentary credit can also be used to finance the transaction by including a credit period in its conditions.

The documentary credit, while independent of the large differences in trading customs and legal systems from country to country, is subject to a number of international rules set down by the International Chamber of Commerce in Paris. These rules ensure standard practice throughout the world.