A letter of credit and a standby letter of credit are both bank-issued instruments that guarantee payment, but they are designed for fundamentally different purposes and are triggered under opposite conditions. Treating them as interchangeable is a common error with real transactional consequences. What They Are Documentary Letter of Credit (LC) A commercial or documentary LC is a payment mechanism. It is designed to be drawn upon — the expectation is that the beneficiary (typically the seller/exporter) will present the required documents and receive payment as the normal course of the transaction.