Letters of credit are forms of documentary credit that connects three main participants of international trade; the importer, the exporter and the banks.

The role of the originator in the creation of the letter of credit is:

One of them is to connect the buyer with the seller so that the transaction is performed efficiently and based on the expectations of both sides.

The second function is to connect the buyers with the banks. This connection is performed so that the issuing bank knows what terms and conditions it needs to look for in the merchandise and it establishes it in the letter of credit.

In the documentary there is always at least one bank that is the agreement with the payer, open credit, and in turn, is being placed as principal in the chain of credit. Besides the bank, there may be a multiplicity of additional banks in the chain, which makes a greater or lesser degree, the functions of the issuing bank in respect of documentary credit.

The other obvious participant of any letter of credit is the beneficiary. It is the person that will receive the payment in concept of the purchase of the merchandise, ie. The exporter.

The beneficiary, usually the exporter, makes sure that the merchandise is delivered according to what the letter of credit establishes and receives payment when the bank allows it.

There are many types of banks involved in letters of credit:

The Issuing bank. It is the one that writes the actual letter of credit in cooperation with the importer in order to give to the exporter. This bank also has the responsibility of informing the corresponding bank whether or not the exporter can receive payment.

Confirming Bank: it assumes the obligation against the recipient to make the payments for the amount of the letter of credit or whether it has received no reimbursement from the issuing bank. A confirmed letter of credit carries a commitment to pay against the beneficiary of two banks: the issuer and confirmer.

The notifying bank. If the bank of the originator does not have a branch in the country of the beneficiary, the latter uses a notifying bank. This bank informs the beneficiary if a letter of credit has been open to his or her favor. Notifying banks do not have obligations against the beneficiaries, only in absence of a confirming bank.