1) Documentary Letter Of Credit :
In this type of letter of credit, it is obligatory to send documents of title to goods along with bill of exchange. If the bill of exchange is not accompanied by these documents the bank may not honor the bill of exchange. By document we mean export document which are document of title to goods e.g. bill of lading, insurance policy, certificate of origin, consular invoice etc.
2) Clean Letter Of Credit :
In this type of letter of credit, bank does not put any conditions are regards the acceptance and payment of bill of exchange.
3) Revocable Letter Of Credit :
In this type, the opener of L/C reserves the right to withdraw or cancel the credit at any time without the consent of the beneficiary. For such revocation the banker is under no obligation to give notice to the beneficiary. The exporter should avoid such type of L/C.
4) Irrevocable Letter Of Credit :
In this type, the bank has no right to withdraw letter of credit once it is opened. The exporter usually insists on
irrevocable letter of credit in order to safeguard his interest. For all practical purpose all L/Cs are generally irrevocable.
5) Back To Back Letter Of Credit :
A back to back letter of credit is a term given to an ancillary credit which arises where the seller (beneficiary) uses the credit granted to him by the issuing bank to support another (ancillary) credit granted by the seller’s (beneficiary’s) bank to his exporter.
6) Confirmed Letter Of Credit :
Whenever a beneficiary wanted a confirmation to be added on the L/C. He will contact the banker with a request to do so. If the banker is willing to add the confirmation on L/C then the L/C will be endorsed accordingly. This will be regarded as confirmed letter of credit. For this confirmation beneficiary requires to make the payment of small charges.
If the L/C is confirmed, then the exporter is assured to receive the payment, if paying bank fails, the confirming bank will honor the commitment.
7) Red Clause Letter Of Credit :
It gives the negotiating bank the authority to grant advances to the beneficiary. This advance is basically intended to finance the purchase of goods to be delivered under the letter of credit.
8) Revolving Letter Of Credit :
When regular flow of trade between an exporter and importer is to take place a revolving credit is preferred. The L/C is established for total transaction value. However, a specific amount is allowed to withdraw and not more at a point of time. As soon as the set up amount is withdrawn, then from total L/C amount this set up amount will revolve into main stream. Now this amount is available for the next transaction.
9) Transferable Letter Of Credit :
L/C when established is always non-transferable. It can be made transferable by specific endorsement on it. A beneficiary can transfer L/C in part or full to one or many other companies. No transferee can further transfer L/C to other person.
