The commercial documentary credit or Letter of Credit is an undertaking issued by a bank for the account of the buyer (the Applicant) to pay the supplier (the Beneficiary) the value of the Draft and/or Documents provided that the terms and conditions of the Documentary Credit are complied with.
The contractual arrangement is triangular between the buyer, seller and the bank. It is evidenced by a Pro-Forma Invoice established by the seller which should feature:
Constitutes a definite undertaking of the Issuing Bank, provided that the required documents as well as the terms and conditions of the documentary credit are compliant. It cannot be amended, revoked or cancelled without the beneficiary's and/or the negotiating/confirming banks consent.