When we talk about documentary credit, it actually means a payment method that provides one stability to the international trade. Eitan Eldar explains that this method is used between companies and entities that don’t know each other and its purpose is to bridge between gaps and differences, interests, etc.
Documentary credit is common in cases of first transactions or transactions that include high sums of money. Eitan Eldar emphasizes that this credit helps in cases that there isn’t any trust between importer and exporter, or when the economic or political situation is not stable.
Documentary credit gives the security needed to the two sides in a transaction. The exporter knows that there is a recognized financial body behind the transaction, which is responsible to the financial side and is objective. The importer knows that he has a sense of security upon receiving the merchandise, according to the conditions that were set.