Documentary Credit Law and Legal Definition

Documentary credit is a credit extended on a document of title or any other legal document by a financial institution. It also refers to the pecuniary arrangement in which a financial institution approves or makes a payment to a third party at a request of its customer. A commercial letter of credit is an example for providing payment by a bank to the named beneficiary, generally the seller of merchandise, against delivery of documents specified in the credit. The documentary credit financing method facilitates international transactions by providing the importer with necessary credit and the exporter with an accelerated cash payment.