TYPES OF LETTERS OF CREDITS
Documents against
Payment LC or Si ght
LC
DP LCs or Sight LCs are those where the payment is made against documents on presentation.
(DA = Documents against payment, DP=Documents against acceptance)
Documents against
acceptance or
us ance
DA LCs or Acceptance LCs are those, where the payment is to be made on the maturity date in terms
of the credit. The documents of title to goods are delivered to applicant merely on acceptance of
documents for payment. (DA = Documents against payment, DP=Documents against acceptance)
Deferred Payment LC It is similar to Usance LC but there is no bill of exchange or draft. It is payable on a future date if
documents as per LC are submitted.
Irrevocable and
revocable credits
The issuing bank can amend or cancel the undertaking if the beneficiary consents.
A revocable credit is one that can be cancelled or amended at any time without the prior knowledge
of the seller. If the negotiating bank makes a payment to the seller prior to receiving notice of
cancellation or amendment, the issuing bank must honour the liability.
With or without recourse
Where the beneficiary holds himself liable to the holder of the bill if dishonoured, is
considered to be with-recourse. Where he does not hold Himself liable, the credit is said to be
without-recourse. As per RBI directive dated Jan 23, 2003, banks should not open LCs and purchase /
discount / negotiate bills bearing the 'without recourse' clause.
Restricted LCs A restricted LC is one wherein a specified bank is designated to pay, accept or negotiate.
Confirmed Credits A credit to which the advising or other hank at the request of the issuing bank adds confirmation that
payment will be made. By such additions, the confirming bank steps into the shoes of the issuing
bank and thus the confirming bank negotiates documents if tendered by the beneficiary.
Transferable Credits The beneficiary is entitled to request the paying, accepting or negotiating bank to make available in
whole or part, the credit Cu one or more other parties (Article 48 of UCPDC). For partial transfer to
one or more second beneficiary/ies the credit must provide for partial shipment.
Back to back
credits
A back to back credit is one where an exporter received a documentary credit opened by a buyer in
his favour. He tenders the same to the bank in his country as a cover for opening another LC in
favour of his local suppliers. The terms of such credit would be identical except that the price may
be lower and validity earlier.
Red Clause
Credits
A red clause credit also referred to a packing or anticipatory credit has a clause permitting the
correspondent bank in the exporter's country to grant advance to beneficiary at issuing bank's
responsibility. These advances are adjusted from proceeds of the bills negotiated.
Green Clause
Credits
A green clause LC permits the advances for storage of goods in a warehouse in addition to preshipment
advance
.
Stand-by
Credits
Standby credits is similar to performance bond or guarantee, but issued in the form of LC. The
beneficiary can submit his claim by means of a draft accompanied by the requisite documentary
evidence of performance, as stipulated in the credit.
Documentary or clean
credits
When LC specifies that the bills drawn under LC must accompany documents of title to goods such as
RRs or MTRs or Bills of lading etc. it is termed as Documentary Credit. If any such documents are not
called, the credit is said to be Clean Credit.
Revolving Credits These provide that the amount of drawings made thereunder would be reinstated and made
available to the beneficiary again and again for further drawings during the currency of credit.
Instahnent credit It is a letter of credit for the full value of goods but requires shipments of specific quantities of
goods within nominated period and allows for part-shipment. In case any instalment of shipment is
missed, credit will not be available for that and subsequent instalment unless of LC permits the
Documents against
Payment LC or Si ght
LC
DP LCs or Sight LCs are those where the payment is made against documents on presentation.
(DA = Documents against payment, DP=Documents against acceptance)
Documents against
acceptance or
us ance
DA LCs or Acceptance LCs are those, where the payment is to be made on the maturity date in terms
of the credit. The documents of title to goods are delivered to applicant merely on acceptance of
documents for payment. (DA = Documents against payment, DP=Documents against acceptance)
Deferred Payment LC It is similar to Usance LC but there is no bill of exchange or draft. It is payable on a future date if
documents as per LC are submitted.
Irrevocable and
revocable credits
The issuing bank can amend or cancel the undertaking if the beneficiary consents.
A revocable credit is one that can be cancelled or amended at any time without the prior knowledge
of the seller. If the negotiating bank makes a payment to the seller prior to receiving notice of
cancellation or amendment, the issuing bank must honour the liability.
With or without recourse
Where the beneficiary holds himself liable to the holder of the bill if dishonoured, is
considered to be with-recourse. Where he does not hold Himself liable, the credit is said to be
without-recourse. As per RBI directive dated Jan 23, 2003, banks should not open LCs and purchase /
discount / negotiate bills bearing the 'without recourse' clause.
Restricted LCs A restricted LC is one wherein a specified bank is designated to pay, accept or negotiate.
Confirmed Credits A credit to which the advising or other hank at the request of the issuing bank adds confirmation that
payment will be made. By such additions, the confirming bank steps into the shoes of the issuing
bank and thus the confirming bank negotiates documents if tendered by the beneficiary.
Transferable Credits The beneficiary is entitled to request the paying, accepting or negotiating bank to make available in
whole or part, the credit Cu one or more other parties (Article 48 of UCPDC). For partial transfer to
one or more second beneficiary/ies the credit must provide for partial shipment.
Back to back
credits
A back to back credit is one where an exporter received a documentary credit opened by a buyer in
his favour. He tenders the same to the bank in his country as a cover for opening another LC in
favour of his local suppliers. The terms of such credit would be identical except that the price may
be lower and validity earlier.
Red Clause
Credits
A red clause credit also referred to a packing or anticipatory credit has a clause permitting the
correspondent bank in the exporter's country to grant advance to beneficiary at issuing bank's
responsibility. These advances are adjusted from proceeds of the bills negotiated.
Green Clause
Credits
A green clause LC permits the advances for storage of goods in a warehouse in addition to preshipment
advance
.
Stand-by
Credits
Standby credits is similar to performance bond or guarantee, but issued in the form of LC. The
beneficiary can submit his claim by means of a draft accompanied by the requisite documentary
evidence of performance, as stipulated in the credit.
Documentary or clean
credits
When LC specifies that the bills drawn under LC must accompany documents of title to goods such as
RRs or MTRs or Bills of lading etc. it is termed as Documentary Credit. If any such documents are not
called, the credit is said to be Clean Credit.
Revolving Credits These provide that the amount of drawings made thereunder would be reinstated and made
available to the beneficiary again and again for further drawings during the currency of credit.
Instahnent credit It is a letter of credit for the full value of goods but requires shipments of specific quantities of
goods within nominated period and allows for part-shipment. In case any instalment of shipment is
missed, credit will not be available for that and subsequent instalment unless of LC permits the
Sir
ReplyDeleteDA (Documents against acceptance)
DP (Documents against payment)
In the above written different kindly help which one is correct