- Unconfirmed L/C-
- Confirmed L/C-
- Standby L/C-
- Revolving
L/C-
- Transferable L/C
- Back to Back L/C-
- Pre-Advise-
- Tender Guarantee(Bid Bond)-
- Performance Guarantee(Performance Band)
- Advance Payment Guarantee-
- Facility Guarantee, Maintenance Guarantee, Shipping Guarantee-
- Commercial L/C
- Bank Guarantee
The different types of
Letter of
Credit (LC) can be categorized as follows: -
1. Confirmed LC: It issued by a foreign bank, with validity confirmed by a bank of origin. A seller who
requires a confirmed LC from the buyer is assured of payment by the origin bank even if the foreign buyer or the foreign bank defaults.
2. Deferred Payment
Credit: It provides for payment some time after
presentation of
the
shipping documents by seller.
3. Discrepancy LC: When documents presented do not conform to the LC, it is
referred to as a "discrepancy".
4. Documentary Credit: Commercial LC provides for payment by a bank to the name beneficiary, usually the seller of merchandise,
against delivery of documents specified in the credit.
5. Irrevocable LC: LC with a fixed expiration date that carries the irrevocable
obligation of the issuing bank to pay the exporter when all of the terms and
conditions of the LC have been met.
6. Red Clause LC: It allows the exporter to receive a percentage of the face value of
the LC in advance of shipment.
7. Revocable LC: It can be cancelled or altered by the Drawee (buyer) after it
has
been issued by the Drawee's bank.
8. Transferable LC: it allows all or a portion of the proceeds to be transferred
from the original beneficiary to one or more additional beneficiaries.
9. LC, Payment by sight draft: Document, issued by a bank per instructions
by
a buyer of goods, authorizing the seller to draw a specified terms, usually the receipt by the bank of certain documents within a given
time.
The parties involved in a letter of credit are as follows:
1. Applicant- who is opener of LC, generally a buyer of goods to make invoice value of
goods.
2. Issuing Bank- issues a letter of credit at request
of
applicant that undertakes to honor a complying presentation of the beneficiary.
3. Beneficiary- It is the seller of the goods or the provider of the services in a
standard commercial letter of
credit transaction.
4. Advising bank- who takes responsibility to communicate and arranges to send
documents to LC
opening bank.
5. Confirming bank- confirms and guarantees to undertake the responsibility of
payment or negotiation acceptance under the credit.
6. Negotiating Bank- who negotiates documents delivered to bank by beneficiary
of LC.
7. Reimbursing bank-
who authorized
to honor
the reimbursement claim
of negotiation/ payment/ acceptance.