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VARIOUS TYPE OF LETTER OF CREDIT
Revocable Credit
This can be amended or cancelled at any time by the importer without the consent of the exporter. This option is not often used, as there is little protection for the exporter. By default all credits are irrevocable, unless otherwise stated.
Irrevocable Credit
Once issued this can only be changed or cancelled with the consent of all the parties. The seller must merely comply with the terms and conditions of the credit in order to receive payment.
Confirmed Credit
In some instances, exporters may request a credit to be confirmed by another bank, (usually a bank in their own country). If a bank adds its confirmation to a credit, it means that it is obliged to pay if the terms and conditions of the credit are complied with. This obligation to pay exists even if the issuing bank or country defaults.
Payment Credit
This is available for payment at the tellers of the paying bank, as nominated in the credit. The seller can, therefore, present documents to the paying bank and does not have to wait for the documents to be forwarded to the issuing bank for checking and subsequent payment.
Negotiation Credit
This is always payable at the counters of the issuing bank. Buyers can use negotiation credits to delay payment until the documents have been received and checked by the issuing bank.
Deferred Payment Credit
Similar to payment credits, except that they are payable at a future date.
Acceptance Credit
The accepting bank guarantees payment to the holder of the bill of exchange on maturity date - regardless of whether the credit is confirmed or not. This option comes with an acceptance fee which can be substantial.
Back-to-Back Credit
The original letter of credit is used as security to open another credit in favour of the exporter's own supplier. The bank confirming the original credit may not necessarily be the issuing bank of the second credit.
Transferable Credit
This is normally used when the exporter is not supplying the goods and wishes to transfer all or part of the responsibilities under the credit to the supplier(s).
Red Clause Credit
This enables the exporter to obtain advance payment before shipment. This is provided against the exporter's certificate confirming its undertaking to ship the goods and to present the documents in compliance with the terms and conditions of the documentary credit.
Green Clause Credit
Similar to a Red Clause Credit, but in addition to pre-shipment finance the exporter also receives storage facilities at the port of shipment at the expense of the buyer.
Packing Credit
This offers pre-shipment finance to the seller against warehouse receipts, forwarding agent's receipts or similar documents that prove the goods are no longer in the seller's possession.
Standby Credit
Similar to a normal letter of credit, this method differs in that it is a default instrument, whereas a normal credit is a payment instrument. A standby credit is only called upon in the event of failure to perform. Its function is, therefore, that of a guarantee.
Revolving Credit
This allows for the credit to be automatically reinstated under certain circumstances. It is normally used where shipments of the same goods are made to the same importer.
Revocable Credit
This can be amended or cancelled at any time by the importer without the consent of the exporter. This option is not often used, as there is little protection for the exporter. By default all credits are irrevocable, unless otherwise stated.
Irrevocable Credit
Once issued this can only be changed or cancelled with the consent of all the parties. The seller must merely comply with the terms and conditions of the credit in order to receive payment.
Confirmed Credit
In some instances, exporters may request a credit to be confirmed by another bank, (usually a bank in their own country). If a bank adds its confirmation to a credit, it means that it is obliged to pay if the terms and conditions of the credit are complied with. This obligation to pay exists even if the issuing bank or country defaults.
Payment Credit
This is available for payment at the tellers of the paying bank, as nominated in the credit. The seller can, therefore, present documents to the paying bank and does not have to wait for the documents to be forwarded to the issuing bank for checking and subsequent payment.
Negotiation Credit
This is always payable at the counters of the issuing bank. Buyers can use negotiation credits to delay payment until the documents have been received and checked by the issuing bank.
Deferred Payment Credit
Similar to payment credits, except that they are payable at a future date.
Acceptance Credit
The accepting bank guarantees payment to the holder of the bill of exchange on maturity date - regardless of whether the credit is confirmed or not. This option comes with an acceptance fee which can be substantial.
Back-to-Back Credit
The original letter of credit is used as security to open another credit in favour of the exporter's own supplier. The bank confirming the original credit may not necessarily be the issuing bank of the second credit.
Transferable Credit
This is normally used when the exporter is not supplying the goods and wishes to transfer all or part of the responsibilities under the credit to the supplier(s).
Red Clause Credit
This enables the exporter to obtain advance payment before shipment. This is provided against the exporter's certificate confirming its undertaking to ship the goods and to present the documents in compliance with the terms and conditions of the documentary credit.
Green Clause Credit
Similar to a Red Clause Credit, but in addition to pre-shipment finance the exporter also receives storage facilities at the port of shipment at the expense of the buyer.
Packing Credit
This offers pre-shipment finance to the seller against warehouse receipts, forwarding agent's receipts or similar documents that prove the goods are no longer in the seller's possession.
Standby Credit
Similar to a normal letter of credit, this method differs in that it is a default instrument, whereas a normal credit is a payment instrument. A standby credit is only called upon in the event of failure to perform. Its function is, therefore, that of a guarantee.
Revolving Credit
This allows for the credit to be automatically reinstated under certain circumstances. It is normally used where shipments of the same goods are made to the same importer.
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