A letter of credit, also referred to as a documentary credit, is a payment mechanism that safeguards both the exporter and the importer involved in a sales contract. It serves as a means to establish the importer’s creditworthiness and provides assurance of payment to the exporter upon fulfillment of specified conditions. Typically, it is the exporter who initiates the request for a letter of credit. This financial instrument acts as a binding commitment from a financial institution to make payment to the exporter once the required documents are presented, ensuring a secure and reliable transaction between parties engaged in international trade.