Letters of credit (L/C) are designed to solve this problem and to help encourage international trade. By their nature, they are designed more to help sellers than buyers. In addition to letters of credit, there is another mechanism that uses banks and documents in a similar way, called payment on a collection basis, the most common of which is documents against payment (D/P). Both L/C and D/P transactions are referred to as documentary transactions because they rely principally on documents as the basis on which payment is made.
While a documentary transaction involves a number of documents, there are two documents that are important to understand.
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