Revocable

Notably, the Letter can be canceled or amended at any time by either the buyer or the issuing bank without any formal notification. What must be remembered, is that in the latest version of the UCP 600, revocable Letters of Credit have been removed for any transaction undertaken within their jurisdiction.

Irrevocable

In contrast, unless all three parties (Buyer, Seller, and Third Party) can agree to terms, then the Letter cannot be canceled, amended or reversed unless a

Confirmed

In this case, the Letter of Credit will be granted “confirmed” status once the exporters confirming bank has added it’s obligation to the issuing bank. With this in mind, the obligation will either be in the form of a guarantee or Assurance of Payment.

Unconfirmed

On the contrary, an Unconfirmed Letter of Credit is only guaranteed by the issuing bank – meaning there is no confirmation from the exporter’s advisory bank. However, this type of confirmation is most common in LC’s, although in areas of economic instability or political uncertainty, payment could be at risk.

Transferrable

In scenarios where the Beneficiary is an intermediary for the real suppliers of goods and services, the payment will need to be transferred to the actual suppliers. In this way, it is transferable to the next supplier in the chain of trade.

Un-transferrable

On the other hand, an Un-transferrable Letter of Credit, payments are prevented from being transferred to any third parties, as the beneficiary is the recipient.

Straight

A Straight LC or ‘Straight Credit’ is defined by the Bank only being allowed to make payment to the beneficiary named in the Letter. In short, they are not permitted to send any payment to any third parties or intermediaries.

Consequently, the named beneficiary must present documents to the paying bank on or before the expiration date, otherwise, the Letter is nulled.

Negotiable

The issuing bank is obligated to pay the beneficiary but also permitted to make payments to any third party nominated by the original beneficiary.

Restricted

To explain, in the case of a Restricted LC only one nominated bank can be used for negotiation. Therefore, the authorization of the issuing bank to make payment to the beneficiary is restricted to a specific, nominated bank.

Unrestricted

In contrast, with an Unrestricted LC the bank is not specified, which means the Letter of Credit can be negotiated through any bank of the beneficiary’s choice.

Term (Usance)

Under usance credits, the issuing bank undertakes to honour a compliant presentation at a future date (known as the “maturity date”). There are two types of usance credits:

Acceptance credits: A documentary credit stipulating the presentation of a bill of exchange (“draft”) which the bank will accept and pay at maturity to the beneficiary.

Deferred payment credits: Same as acceptance credits, except that they do not require the presentation of a draft.

Sight

With sight credits, the nominated bank (acting on its nomination), the confirming bank, or the issuing bank effects payment upon presentation of the documents (also called “at sight”), provided documents comply with the terms and conditions of the documentary credit.