What Are The Types Of Letter Of Credit?

Sight letter of credit

I m a trader and do not want to disclose my buyer and seller. In this case how to protect my interest?

Explain types of letter of credit

• A letter of credit is the most commonly used form of secure payment.
O It is a document issued by a financial institution at the buyer's request and instructions.
O It spells out the terms under which the seller will be paid.
 Pay the seller a certain amount when it produces documents according to the instructions.
O It acts as an escrow account.
• A letter of credit is the preferred method of payment in trade with areas outside of Western Europe, Canada, and the United States.
O Because it offers independent assurance to the both exporter and buyer.
• A letter of credit is a critical document, so it is imperative that the seller issue clear guidelines to the buyer on how to open a letter of credit.

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There are various kinds of letter of credit. The types of them are irrevocable credit, revocable credit, confirmed credit, unconfirmed credit documentary credit, clean letter credit, fixed credit and revolving credit.

Irrevocable letter of credit: Irrevocable letter of credit is one in which the issuing bank gives a lasting understanding to accept and in due course to pay bills drawn upon it. The only condition is that the exporter fulfills the terms and conditions stipulated in the letter relating to documents. The irrevocable letter of credit gives a complete protection to the exporter as it is guaranteed not by a foreign bank.

Revocable letter of credit: Revocable letter of credit as the same signifies is one which can be modified or cancelled by the issuing bank at any time without any obligation on its part. As revocable letters of credit are subject to cancellation without notification therefore they are not usually acceptable to the businessmen.

Confirmed letter of credit: The confirmed letter of credit is that which has the protection of the credit standing of the importer's as well as the exporter's bank. The exporter's bank which confirms the letter of credit takes the liability of paying agents in case the issuing bank falls to make payment to the exporter. The confirmed letter of credit is useful when the financial strength and standing of the issuing bank in the foreign country is known to the exporter. The issuing bank does not enjoy a good reputation. The issuing bank is not well reputed. The political conditions in the issuing bank's country are unsettled.