A documentary letter of credit is an undertaking of the bank, which has opened a letter of credit on request of a buyer (applicant) to pay an amount to the seller (beneficiary) as specified in the letter of credit upon the provision of documents by the seller (beneficiary) that meet the conditions of the letter of credit and confirm the shipment of commodities (the provision of services) within the prescribed time frame.

The performance letter of credit puts the bank issuing the document as the go between with the buyer and seller. The performance letter of credit protects the buyer's money until the seller delivers the goods, and it protects the seller because it guarantees the seller payment upon delivery or proof of shipment.

A letter of credit that assures the payment if the buyer does not pay. After fulfilling all the terms under SBLC, if the seller proves that the promised payment was not made. In this situation, the bank will pay to the seller. In a nutshell, it does not facilitate a transaction but guarantees the payment.