Which document is used to guarantee payment in international trade?

The letter of credit is a crucial financial instrument used to guarantee payment in international trade transactions. It acts as a promise from a bank on behalf of the buyer, ensuring that the seller will receive payment once they meet the specific terms and conditions set forth in the letter. This instrument mitigates the risk for both parties involved in the transaction, as the seller can be assured of payment, and the buyer can ensure that payment will only be made upon fulfillment of the agreed terms, such as delivery of goods and submission of necessary documentation.

In international trade, where parties may be located in different countries and may not have established trust, the letter of credit provides a reliable and secure method of conducting transactions. It serves to facilitate trade by giving confidence to sellers that they will be compensated for their goods.

Other documents listed, like a promissory note, generally represent a borrower's promise to pay a specific amount but do not provide the same level of security in international trade transactions. A commercial invoice is a document detailing the sale and terms but does not guarantee payment. A bill of lading, while important for shipping and logistics as it represents the receipt and title of the goods being transported, does not itself ensure payment.