Revocable LC. This LC type can be cancelled or modified by the Bank issuer at the customer's instructions without prior agreement of the beneficiary Seller.
The Bank will not have any liabilities to the beneficiary after revocation of the LC. Stand-by LC. This LC is closer to the bank guarantee and gives more flexible collaboration opportunity to Seller and Buyer. Confirmed LC. Irrespective to the payment by the Bank issuing the LC issuer , the Bank confirming the LC is liable for performance of obligations.
Unconfirmed LC. Transferable LC. This LC enables the Seller to assign part of the letter of credit to other party ies. This LC is especially beneficial in those cases when the Seller is not a sole manufacturer of the goods and purchases some parts from other parties, as it eliminates the necessity of opening several LC's for other parties. Back-to-Back LC. This LC type considers issuing the second LC on the basis of the first letter of credit.
Thanks for your help. You put your effort to assist the people who work with foreign trading. Helped a lot, Reply. Thank you! Helped a lot! Thanks a lots Reply. Genuine proper information about the above explanation Reply. Well presented and a good read. This is a good understanding of the letter of credit thanks a lot Reply. Kindly advise Reply. It was an insightful content as far as the letter of credit is concerned. For example Beneficiary name: Ronald Dsouza Reply.
Yes, Why not? You just need to satisfy the bank norms. I got good info from your blog. Thanks Reply. Helpful Reply. Learned a lot about LC from your site Reply. Is there any LC named open LC? It is a good article. Is this the same as special credit on finance to international trade Reply. What is UPass LC???? Hi, Reply. Sir, thanks for above info, please also elaborate discounting of LC.
According to this LC, payment is made to the seller immediately maximum within 7 days after the required documents have been submitted. Deferred Payment LC. According to this LC the payment to the seller is not made when the documents are submitted, but instead at a later period defined in the letter of credit. In most cases the payment in favor of Seller under this LC is made upon receipt of goods by the Buyer.
Red Clause LC. The seller can request an advance for an agreed amount of the LC before shipment of goods and submittal of required documents. This red clause is so termed because it is usually printed in red on the document to draw attention to "advance payment" term of the credit. There are various types of letters of credit used in the trade transactions. Some of the letters of credit may be defined by their purpose.
The following are the different types of letters of credit:. The exporter will term it as an exporter letter of credit whereas an importer will term it as an importer letter of credit. Transferable LC: A letter of credit that allows a beneficiary to further transfer all or a part of the payment to another supplier in the chain. This generally happens when the beneficiary is just an intermediary for the actual supplier.
Such letter of credit allows the beneficiary to provide its own documents but transfer the money further. The beneficiary is the only recipient of the money and cannot further use the letter of credit to pay anyone. Such types of letters are not used frequently as the beneficiary is not provided any protection. Irrevocable LC : A letter of credit that does not allow the issuing bank to make any changes without the approval of the beneficiary. In short, they are not permitted to send any payment to any third parties or intermediaries.
Consequently, the named beneficiary must present documents to the paying bank on or before the expiration date, otherwise, the Letter is nulled. The issuing bank is obligated to pay the beneficiary but also permitted to make payments to any third party nominated by the original beneficiary.
To explain, in the case of a Restricted LC only one nominated bank can be used for negotiation. Therefore, the authorization of the issuing bank to make payment to the beneficiary is restricted to a specific, nominated bank. In this case, payment can be deferred with a Usance Letter of Credit, which gives time for the buyer to inspect or even sell the goods. Likewise, each of these different types of Letters of Credit help protect traders on both sides of a transaction from the many difficulties associated with cross-boarder trade.
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