Simply put
It is mostly used in imports: the supplier abroad does not know you and does not want to ship before payment, and you do not want to pay before shipment. The bank solves the problem because it pays against the documents.
The bank deals with the documents, not the goods themselves, so review the credit's terms carefully. Its costs (fees and charges) are usually added to the cost of the imported goods.
Example
An auto parts store imports a shipment from abroad. It opens a letter of credit at its bank in favor of the supplier. The supplier ships and presents the bill of lading, certificate of origin and invoice, the bank pays after checking them, and then the store receives the documents to clear the goods.
Don't confuse it with
in FullScreen ERP
The Purchases module allocates import costs such as freight and customs to the items. Purchasing and suppliers