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.
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