ABSTRACT
Documentary or commercial credit is a method of financing trade, usually between domestic and foreign traders. It is one of the commonest methods of financing international trade. In normal circumstances, the seller, who may be based overseas, is not aware of the financial standing of the buyer. Likewise, the buyer may not be in a position to readily ascertain the propriety of the seller to supply the goods. To obviate this handicap to commerce, the use of a commercial credit may be called into play. Because of the general hazards of moving physical cash across international frontiers, commercial and merchant usage saw the introduction of credit to commerce as a necessary innovation. Credit is available by acceptance if the issuing bank undertakes to accept a draft drawn on it. A credit opened by the buyer/importer in favour of a seller/exporter is discounted or paid against the presentation of the contract documents.
