Types Of Letter Of Credit

                                             TYPES OF LETTER OF CREDIT

Letter Of Credit basically is contract between buyer and seller that buyer will pay to seller cost of goods supplied after receiving documents of shipment. Normally Buyer`s bank open LC after checking the documents send by seller with his bank. This concept of LC is widely use in international trade.  In this article we will discuss types of letter of credit

Types of Letter Of Credit

Irrevocable LC: – Meaning of irrevocable is “not able to be changed, reversed, or recovered or final”. Irrevocable LC can`t be change or modify or cancelled unless both parties agreed. Seller confident in receiving payment with Irrevocable LC.  In international trade Irrevocable LC use on regular basis.

Revocable LC:- Meaning of Revocable is “ to changed, modify , cancelled without consent of other parties in  this kind of LC  seller`s interest not protected in actual practice this kind of LC not use

Restricted LC: - Restricted LC is the LC where importer appointed particular or specific bank  to do all LC process All the transactions will be done by one bank only.

Confirmed LC: - In the process of foreign trade sometimes seller have doubt about issuing bank credit rating or he may think that issuing bank is small bank so seller ask issuing bank to appoint a big bank to take guarantee of issuing bank`s financial position or pay amount of letter of credit if issuing bank fails to pay it this type of LC is called Confirmed LC all Irrevocable L.C are Confirmed LC

Transferable LC: - Sometimes other or sister concern company export goods on the behave of main company where Transferable LC use because beneficiary allowed bank to transfer some part or whole part   of LC to other subsidiary company name

Back to Back LC: - In foreign trade one is importer and other exporter. Sometime exporters purchase the goods from its suppliers and export it to buyer. Exporter gets the credit of its supply through letter of LC Some part of letter of credit seller shares with its supplier which is known as Back to back LC     

Standby LC :-  In normal LC Buyer pays the LC to Seller but sometimes applicant fails to pay  LC  amount then it`s  issuing bank pays the letter of credit on the behave of buyer this LC called stand by LC  It is  also  treated a bank guarantee  and it is given  to beneficiary  if client fails to makes payment of shipment .  

Revolving LC :-  International trade is continue process of  business where buyer purchase the goods and seller sold the goods in this process a LC is issued which takes cares of payments of many transactions this LC is called Revolving LC. Revolving LC is two types cumulative and non cumulative type cumulative type carried forward and non cumulative not carried forward

Red Clause LC: – When any LC use for the purpose advance payment to seller then it is Red Clause LC. Sometimes exporter doesn’t have funds to pay for packing and transportation. So he ask to buyer give him advance payment against LC then on demand buyer transfer some credit to seller account this amount later deduct from actual amount of letter of credit .

Green clause LC: - This letter of credit is also given as advance payment for before shipment against goods at terminal it kind of secured lone given against goods lying for exports this LC amount is also deducted from the actual LC 

Deferred LC: – This is a conditional letter of credit where a bank pays the letter of credit to seller on the behave of buyer after the completion of transition and against proper documents. The date of payment usually after shipment of goods  

Sight LC:-– Payment received from this LC faster than other LC. As seller fulfills all requirement of letter of credit seller’s gets credit of this LC usually payment receives within seven to ten days.  This is faster payment method to exporter who are regular exporting the goods