What is a Letter of Credit ?

A letter of credit is a written undertaking given by a bank on behalf of the buyer, to pay the seller an agreed sum within a specified time, provided the seller presents documents strictly in accordance with the terms laid down in the letter of credit.

What benefits does the letter of credit provide ?

For the Exporter	For the Importer
The bank pays as specified in the letter of credit independent of the buyer.	By opening a letter of credit, the importer confirms that he is credit worthy and may be able to obtain more favourable payment terms.
The buyer cannot withhold the payment under any pretence.	The goods will be delivered in accordance with the delivery conditions specified in the letter of credit
If the buyer wishes to complain about the goods, he must do so saperately from the letter of credit.	The buyer receives the documents he has asked for under the credit by a specific date.
Delays, such as they can occure e.g. in transmitting bank transfers, are avoided to a large extent	The buyer can be certain that he only has to pay if the documents comply with the terms of the letter of credit in all respects.
Payments are generally made faster under a letter of credit

FEES FOR DOCUMENTARY LETTERS OF CREDIT (L/C)

For detail understanding of documentary credit be acquainted to the general process:
The process of documantary credit