If a single letter of credit is used to cover several transactions, it’s referred to as a revolving letter of credit. Commercial LCĪ commercial letter of credit is the standard LC and can also be referred to as a documentary credit. The letter of credit can either be referred to as export or import LC depending on whether an importer or exporter uses it. Most letters of credit fall under this category. This letter of credit is issued by the buyer’s bank and doesn’t include assurance for payment from a second bank. The letter cushions the seller from non-payment by the buyer’s bank thus the need for a letter from a second bank confirming payment. Confirmed LCĪ second bank writes a confirmed letter of credit to guarantee payment to the seller. Back to Back LC involves two letters one to the intermediary by the buyer’s bank and a second letter to the supplier by the intermediary’s bank. We use this letter of credit in transactions that involve an intermediary. This letter guarantees the seller of payment. Irrevocable LCĪny changes to this letter can only be made after consultations between the involved parties. Such letters are not common since the seller has no guarantee of payment with this letter. Revocable LCĪ revocable letter of credit is a credit letter the issuing bank or the buyer can cancel that without notifying the seller. If the buyer does not pay the seller, the bank has to honor the letter by paying the seller. The letter acts as a guarantee for payment. It’s only the beneficiary who can claim payment using this letter. The letter doesn’t allow transfer of payment to third parties. In such a case, the recipient can use their documents as they transfer the money. The beneficiary is a link between a seller and the actual supplier. Most common letters of credit include Transferable LCĪ beneficiary can write a letter to transfer payment to another beneficiary or supplier this letter is a transferable LC. Types of letter of creditīased on business transactions, various kinds of letters of credit exist. If faced with a challenge when writing these letters, you can use samples and templates to familiarize yourself on the details and format.
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