The Different Types of a Letter of Credit

If you run a trading business in the developed UAE region, then you must already know about the different features of a letter of credit. But you must also have some knowledge about various letter of credits. There are hosts of varieties. It depends on the banking authority’s judgment and the subtle details of the trade deal and what kind of credit letter will be issued by the concerned bank. Read more to get some good ideas regarding a wide range of letters of credit.

The Commercial Letter of Credit

It is the most standard form a bank credit letter that is processed in the trading business network. Most of the cases involving international trading partners essentially have a commercial credit letter issued by a specific bank and confirmed by an advising bank.

Commercial Letter of Credit

The Transferable Letter of Credit

The network involves more than one supplier. The major supplier as per the trade deal is the beneficiary. If, due to unforeseen changes in business or administrative dynamics, the beneficiary fails to deliver the products to the international buyer, then the responsibility of filling the gap in the delivery is shouldered by the additional supplier. The letter of credit has this particular provision in it.

Untransferable Letter of Credit

This is just the opposite of what you read in the previous point explaining the transferable provisions. In this type of LC, the beneficiary has no power to transfer the responsibility of delivering the goods to another supplier or to any third-party vendor. Hence, the letter of credit becomes Untransferable in nature.

Revocable Letter of Credit

It is not a very common form of LC. The conditions laid down by this instrument can be altered by the issuing bank authority at any stage of processing the trade deal without providing any updated information to the seller. This is a rare variety where the seller does not benefit particularly.

Irrevocable Letter of Credit

As the name suggests, the letter is just the opposite of a revocable LC, as explained in the previous point. The priority is given to the seller. The issuing bank in this case has absolutely no power to alter the terms and rules of the letter without taking the consent of the seller.

Standby Credit

Standby Letter of Credit

When the payment to the seller is disrupted, then this letter ensures a constant flow of funds or payment to the seller’s coffers.

These were some of the more important types of a letter of credit. We hope it made things clear about the differences between their purpose and utility.

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