Types of letter of credit

- Jun 22, 2018-

L/C transactions have always been a very important form of transaction in international trading and ensure the security of transactions.

Letters of credit are important assurances or guarantees to sellers that they will be paid for a large transaction, particularly with international exchanges. Think of them as a form of payment insurance from a financial institution or another accredited party to the transaction.

Our company provides various types of L/C services, the following is the common letter of credit recommended by Oulian company.

Types of letter of credit

1.Commercial L/C: This is a standard letter of credit that’s commonly used in international trade, and may also be referred to as a documentary credit.

2.Transferable L/C: A letter of credit that allows a beneficiary to further transfer all or a part of the payment to another supplier in the chain. This generally happens when the beneficiary is just an intermediary for the actual supplier.

3.Un-Transferable L/C: A letter of credit that doesn’t allow transfer of money to any third parties. The beneficiary is the only recipient of the money and cannot further use the letter of credit to pay anyone.

4.Revocable L/C: A letter of credit that can be altered any time by the issuing bank or the buyer without any notification to the beneficiary. Such types of letters are not used frequently as the beneficiary is not provided any protection.

5. Irrevocable L/C: A letter of credit that does not allow the issuing bank to make any changes without the approval of the beneficiary.

6.Confirmed L/C: A letter of credit where an advising bank also guarantees the payment to the beneficiary. Only the irrevocable letters of credit are confirmed by the advising bank. The beneficiary has two promises to pay –the issuing bank and the advising bank.

Agreed to By Both Parties

Every letter of credit, regardless of type, is written in an official document agreed to by both parties before it is submitted to the guaranteeing financial institution for review. Before you acquire a letter of credit for any transaction, make sure that you communicate with the other party in detail before either of you submit an application. Ask for a copy of any application so that you can review the terms and conditions.