Letter of Credit
various types of Letter of Credit used in international transactions.
or DP LC - A DA LC is a type of letter of credit wherein the payment is to be
made on the maturity date in terms of the credit. The documents of title to
goods are delivered to the buyer merely on acceptance of documents for payment.
The buyer would then make the payment on the due date of the maturity of the
LC. DP LCs are types of letter of credit wherein payment is made against
documents on presentation.
& Revocable LC - Irrevocable letter of credit is a type of LC which can be
cancelled or amended only with consent of the beneficiary, applicant and
confirming bank. A revocable LC can be cancelled or amended at any time without
prior intimation to the beneficiary. LCs are normally irrevocable.
LC With or
Without Recourse - If the beneficiary holds itself liable to the holder of the
bill if dishonored, then the LC is considered with recourse. Where the
beneficiary doesn’t hold itself liable, the credit is said to be
LC - A restricted LC is one wherein a specific bank is designated to pay, accept
or negotiate the LC.
LC - A confirmed LC is a type of letter of credit in which the advising bank at
the request of the issuing bank adds confirmation that payment will be made.
The confirming bank’s liability is similar to the issuing bank. The confirming
bank has to honor the payment if tendered by the beneficiary.
LC - If a LC can be transferred by the beneficiary in whole or in part to a
second beneficiary (usually a supplier to the seller) then the LC is a
transferable LC. The 2nd beneficiary however, cannot transfer the LC further.
Back to Back
LC - In a back to back LC, a 2nd LC is opened by the original beneficiary in
favor of the 2nd beneficiary against the security of the original LC. A back to
back LC is usually opened for suppliers.
Standby LC - A standby LC is similar to performance bond or guarantee, but issued in the
form of a LC. The beneficiary of a standby LC can submit a claim by means of
documentary evidence, as stipulated in the LC document.
LC: In a revolving LC, the applicant would be allowed to use the LC facility
again based on drawings made and payment made against the LCs.