Types of letter of credits

🔴Types of Letter of Credits :



✅Documents against Payment LC : Where payment is made against documents ( D/P LC )

✅Documents against Acceptance LC : Where payment is made on maturity date ( D/A LC )



🔴Irrevocable LC/ Revocable LC :



✅In Irrevocable LC : Issuing bank can amend/cancel LC with the consent of beneficiary (Seller)



✅In Revocable LC : Issuing bank can amend/cancel LC without the consent of beneficiary (Seller)



🔴With or Without Recourse LC :



✅With Recourse : Where the beneficiary holds himself liable to the holder of the bill, if dishonoured.



✅Without Recourse : Where the beneficiary does not hold himself liable, if the bill is dishonoured.



✅Restricted LC : Where a specified bank is designated to pay, accept or negotiate the documents



✅Confirmed LC : Where the advising/other bank at the request of issuing bank adds confirmation that payment will be made



✅Transferable LC : At the request of the opener, the LC can be transferred to one or more parties.



✅Back to Back LC : Where an exporter request for opening of LC in favour of local suppliers in cover of original LC received from his buyer Types of Letter of Credit



✅Red Clause LC : Where the LC permit the negotiating bank to grant of packing credit to the beneficiary at issuing bank ’ s responsibility



✅Green Clause LC : LC permits the advance for storage of goods in addition to pre-shipment advance



✅Stand by LC : It is similar to performance bond or guarantee. The beneficiary can submit the claim alongwith requisite documents to issuing bank



✅Revolving LC : The amount of drawing made under LC would be reinstated and made available to the beneficiary again

BFM



Parties to Letter of Credit :



Applicant : The buyer of goods



Issuing Bank : Buyer ’ s bank



Advising Bank : To whom LC is sent for onward transmission to the seller



Beneficiary : The party to whom, the LC is addressed i.e. seller



Negotiating Bank : The bank to whom the beneficiary will present the documents



Reimbursing Bank : Third bank, which repays/settles the funds at request of issuing bank



Confirming Bank : The bank, which undertake the responsibility of issuing bank on his failure Parties to Letter of Credit