Types of Letter of Credit

In my previous post I had written about Parties to letter of credit, now let’s look at various types of letter of credit –

1. Revocable Letter of Credit – It is one which can be canceled by the issuing bank at the request of the applicant, without the consent of the beneficiary.

2. Irrevocable Letter of Credit – It is one which cannot be canceled by the issuing bank, and consent of beneficiary is necessary before revoking it.

3. Revolving Letter of Credit – It is one whereby the credit available to the beneficiary gets returned after being utilized once, in simple words same letter of credit is used for multiple dealings with the same importer.

4. Transferable Letter of Credit – It is the one where the beneficiary or exporter can transfer his rights to a third party.

5. Deferred Letter of Credit – It is a letter of credit that allows the issuing bank to make the payment to the beneficiary or exporter in installments the amount and time of which are fixed.

6. Back to Back Letter of Credit – It is a letter of credit which is opened with another letter of credit as the security. It is primarily used in international transactions.

Hence above were the various types of letter of credit; however the above list is not mutually exclusive and there can many more types of letter of credit.

3 comments… add one
  • Subhakant Mishra

    Hi,
    Can u give a flow chart of activities involving various parties for opearting a letter of credit??
    Thanx n regards
    Subhakant

    • Vinish

      Sure Subhakant, I will surely write it in my next articles, stay tuned.

  • Georgianna Yazzle

    Outstanding weblog. I am planning to write an ebook on international finance and this helps quite a bit

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