The buyer must also consider the economic, political and social stability of the seller's country, as these conditions may make it impossible for the seller to ship as promised. Documentary letters of credit Letters of credit are the most common form of international payment because they provide a high degree of protection for both the seller and the buyer. A letter of credit is a bank's promise to pay a supplier on behalf of the buyer so long as the supplier meets the terms and conditions stated in the credit. The buyer specifies the documentation that he requires from the seller before the bank is to make payment, and the seller is given assurance that he will receive payment after shipping his goods so long as the documentation is in order. Documents are the key issue in this kind of transactions.
Banks act as intermediaries, and have nothing to do with the goods themselves.
Before opening a letter of credit, the buyer should reach agreement with the supplier on all particulars of payment procedures, schedules of shipment, type of goods to be sent, packaging, and documents to be supplied by the supplier. Most problems with letter of credit transactions have to do with the ability of the supplier to fulfill obligations the buyer establishes in the original letter of credit. The supplier may find the terms of the credit difficult or impossible to fulfill and either tries to do so and fails, or asks the buyer for an amendment to the letter of credit. Observers note that over half of all letters of credit involving parties in East Asia are amended or renegotiated entirely. Since most letters of credit are irrevocable, amendments to the original letter of credit can only be made after further negotiations and agreements between the buyer and the supplier.