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Types of Letter of Credit

Types of Letter of Credit

Revocable Letter of Credit
A revocable letter of credit may be revoked or modified for any reason, at any time by the issuing bank without notification. It is rarely used in international trade and not considered satisfactory for the exporters but has an advantage over that of the importers and the issuing bank. It should be indicated in the LC that it is revocable else it will be deemed as irrevocable.

Irrevocable Letter of Credit
Irrevocable Letter of Credit cannot be revoked or amended without consent of all the parties i.e. the issuing bank, the confirming bank, and the beneficiary. Form an exporters point of view it is believed to be more beneficial. An irrevocable letter of credit from the issuing bank insures the beneficiary that if the required documents are presented and the terms and conditions are complied with, payment will be made.

Confirmed Letter of Credit Confirmed Letter of Credit is has added of another bank apart from that of the issuing bank. Although, the cost of confirming by another banks makes it costlier, this type of L/c is issued in cases where the beneficiary wants guarantee from a bank in his country.

Sight Letter of Credits
In Sight Letter of Credits the payments would be made by the issuing bank at sight, on demand or on presentation.

Usance Letter of Credit
In Uusance Letter of Credit, draft are drawn on the issuing bank or its correspondent bank for specified usance period.

Back to Back Letter of Credit A Letter of Credits is known as Back to Back Letter of Credits when it is opened on the security of another Letter of Credit.

Transferable Letter of Credit In a Transferable Letter of Credit the first beneficiary (which is usually a middleman) can request the nominated bank to transfer credit in whole or in part to the second beneficiary.

UCPDC Guidelines

Uniform Customs and Practice for Documentary Credit (UCPDC) is a set of rules established by the International Chamber of Commerce (ICC) on Letters of Credit. The UCPDC is used by bankers and commercial parties in more than 200 countries including India to facilitate trade and payment through LC.

UCPDC was first published in 1933 and subsequently updated from time to time. The latest revision was approved by the Banking Commission of the ICC at its meeting in Paris on 25 October 2006. This latest version, called the UCP 600 formally commenced on 1 July 2007.

Types of Letter of Credit



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