By Charlotte GAUCHON
23 March 2025
In international trade, payment is often the crux of a transaction. Importers fear paying without receiving the goods they have ordered. Exporters fear delivering without receiving payment. Documentary credit resolves this equation by offering mutual guarantees to both parties. This legal and financial instrument, a pillar of cross-border trade, deserves to be explored in more detail. Definition and functioning of documentary credit Documentary credit is a transaction whereby a bank undertakes, at the request of a buyer, to pay a seller upon presentation of documents proving that the goods have been shipped. The resulting contractual relationship involves four parties: The buyer (principal) The seller (beneficiary) The issuing bank (the buyer's bank) The notifying or confirming bank (the seller's bank) The typical process of a documentary credit transaction follows several chronological steps: The buyer asks their bank to open a documentary credit The issuing bank opens...
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