EXIM

TYPES OF LETTER OF CREDIT

  

There are different types of letters of credit which can be considered by Exporters and Importers for International Trade.

 

 

REVOCABLE LETTER OF CREDIT

This type of letter of credit can be cancelled or amended by the issuing bank at any time and without prior notice to or consent of the beneficiary. This Letter of credit is not safe from the Exporter’s Point of View as issuing bank does not require beneficiary/exporter’s confirmation for making change in the L/c

 

Revocable LCs. However, if any bank has negotiated bills before receipt of notice of revocation, opening bank is liable to honour its commitments. The LC should clearly state that the same is revocable.

 

IRREVOCABLE LETTER OF CREDIT

In this type of letter of credit consent of all concerned parties are required for cancellation or making any amendment to the L/c

 

REVOLVING LETTER OF CREDIT

Under this letter of credit the L/c amount is reinstated without any specific amendments as per the terms and conditions. It can revolve in relation to time and value. Such type of credit is generally used in domestic trade and sometimes for Import. The Issuing bank has to confirm to the negotiating bank about the acceptance / payment of the documents for reinstatement of the amount in the LC.

 

TRANSFERABLE LETTER OF CREDIT

Transeferrable letter of credit can be transferred by the first i.e. original beneficiary to one or more other beneficiaries. Such type of L/cs are generally issued to middlemen/ dealers. It gives sellers the right to instruct the advising bank to make the credit available in whole or in part to one or more second beneficiaries. The LC can be transferred to more than one second beneficiary provided LC permits partial shipment and aggregate value of amounts so transferred does not exceed value of original LC. The LC can be transferred only once and only on terms stated in the credit, with the exception of :

- The amount of the Credit,

- Any unit price stated therein, - The expiry date, - The latest shipment date or given period for shipment, - The period for presentation of documents, any or all of which may be reduced or curtailed.

 

BACK TO BACK LETTER OF CREDIT

Back to back L/c is generally issued by the Middlemen where they do not want to reveal details of the buyer. In case of a transferrable LC, the beneficiary can ask the nominated Bank to transfer the credit in favour of his suppliers. But, where the credit is not transferrable and in cases where in a middle man enters into a contract to supply goods to be obtained from other suppliers but is unwilling to disclose the identity of the buyer and the buyer also is unwilling to open a Transferable Letter of Credit, such Back to Back credits are opened. 

 

RED CLAUSE LETTER OF CREDIT

In this type of letter of credit, beneficiary may receive advance before doing shipment as per the terms and conditions stated in the L/c.

The clause used to be printed in red, hence the LC is called Red Clause LC. The nominated bank provides the pre-shipment credit to the beneficiary as per the authority given by the issuing Bank. In case the beneficiary fails to export the goods or fails to repay the advance the nominated bank gets the amount paid by the issuing bank.

GREEN CLAUSE LETTER OF CREDIT

In Green Clause letter of credit, it provides not only facility to supplier receive advance for purchase of raw material, processing and packing as in red clause letter of credit but also includes warehousing, insurance and port space booking charges.

 

PAYMENT LETTER OF CREDIT

It is a sight credit which is available on presentation of required documents under letter of credit.

In a payment credit, beneficiary may or may not be called upon to draw a Bill of Exchange. In many countries, because of stamp duties even on sight bills, drawing Bill of Exchange is dispensed with.

 

DEFERRED PAYMENT LETTER OF CREDIT

It is a usance credit under which issuing bank makes payment on the due dates as per letter of credit terms without drawing bill of exchange but it must specify the maturity at which payment is to be made and how such maturity is to be determined.

ACCEPTANCE LETTER OF CREDIT

Acceptance Credit is similar to deferred payment credit except for the fact that in this credit drawing of a usance Bill of Exchange is a must.

Under this credit, Bill of Exchange must be drawn on the specified bank for specified tenor, and the designated bank will accept and honour the same, by making payment on the due dates. 

 

Related Topics 

What is letter of Credit

Sample Letter of Credit 

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SAMPLE LETTER OF CREDIT

 

 BELOW IS THE STANDARD FORMAT OF LETTER OF CREDIT

Swift Input  : FIN 700 Issue Of A Documentary Credit

Sender   :

Receiver :


---------------------------- Message Text --------------------------- 27: Sequence Of Total

1/1

40A: Form Of Documentary Credit IRREVOCABLE

 20: Documentary Credit Number

 

31C: Date Of Issue

40E: Applicable Rules

   UCP LATEST VERSION

31D: Date And Place Of Expiry

50: Applicant

 

59: Beneficiary

 

32B: Currency Code ,Amount

 

39A: Percentage Credit Amount Tolerance


41A: Available With...By...

 

43P: Partial Shipments

 

43T: Transhipment

 

44E: Port Of Loading/Airport Of

 

44F: Port Of Discharge/Airport Of Destination

 

44C: Latest Date Of Shipment


45A: Description of Goods and/or Services

 

46A: Documents Required

 

47A: Additional Conditions

+ L/C IS AVAILABLE BY PAYMENT AT SIGHT.

 

+ THIRD PARTY DOCUMENTS ARE ACCEPTABLE EXCEPT INVOICE AND PACKING LIST.

.

+ NEGOTIATION UNDER RESERVE(S) AND/OR BANK GUARANTEE PROHIBITED .

+ DOCUMENTS TO BE SENT BY SPECIAL COURIER SERVICES IN ONE LOT

(ON BENEF. ACCOUNT) TO OUR ADDRESS:

.

71D: Charges

ALL CHARGES AND COMMISSIONS

OUTSIDE FRANCE ARE ON

BENEFICIARIES' ACCOUNT

 48: Period for Presentation in Days

21FROM B/L DATE WITHIN L/C VALIDITY

49: Confirmation Instructions WITHOUT

78: Instructions to the Paying/Accepting/Negotiating Bank

WE UNDERTAKE TO COVER THE PRESENTING/NEGOTIATING BANK AS PER THEIR INSTRUCTIONS AFTER RECEIPT OF THE COMPLYING PRESENTATION.

.

NEGOTIATING BANK MUST CERTIFY ON THEIR SCHEDULE THAT ALL CHARGES OF ADVISING BANK HAVE BEEN SETTLED .

WE CONFIRM THAT L/C IS SUBJECT TO UCP 600

57A: 'Advise Through' Bank

72Z: Sender To Receiver Information

PLEASE ACKNOWLEDGE RECEIPT BY

RETURN SWIFT

-------------------------- Message Trailer ---------------------------

 Related Topics

What is letter of credit ?

 

Is RBI – International Trade Settlement in Indian Rupees beneficial?

Recent notification issued by Reserve Bank of India for settlement of International trade in Indian Rupees to promote growth in global trade with emphasis on exports from India and to support the increasing interest of global trading community in INR.

But we need to understand how much it will be helpful in making Indian currency stronger vis-à-vis other currencies mainly US Dollars. At this moment it is very difficult to predict its impact on currency and growth of international trade. There are certain issues related to ii like.

  • Opening of Vostro account by Indian Authorized Dealer Bank in other country with their counterpart.
  • Other countries willingness to trade in Indian Rupees.
  • Would the big economies like US, Europe and China will accept our proposal for such arrangement?
  • Will it be helpful in covering balance of payment of Indian government?
  • Will this plan be limited to the under developed countries?

Understanding all these factors, it seems that development countries with big economy where our trade volume is very large, will not be interested in such arrangements. If we consider China, India has very big gap in Export and Import volume and value. Further US and European countries will not like such arrangements as they have to take care of their own currencies.

Now coming to under developed countries, they might be interested in such arrangements as they are dependent on more imports from India and instability of their own currencies.

So, in coming years we could be able to judge in better way the impact of such arrangement.