Financialdealz.com blog is offering a comprehensive update on different types of DLC’s and LC’s terms used in International Trade Finance
Types of Letter of Credit - Documentary Letter of Credit in short called as DLC Or LC. Depending on the type of business transaction and the trade requirement, the present banking system under UPC600 regulation, here are various types of letter of credit (DLC) available.
Below listed are 17 popular known types which are used for trade finance internationally as payment methods.
1) Irrevocable Letter of Credit Means it is a type of documentary credit which can not be cancelled or amended by the issuing bank without the agreement of the parties of the letter of credit transaction.
2) Revocable Letter of Credit Means A revocable DLC is a credit, the terms and conditions of which can be amended/ cancelled by the Issuing Bank. This cancellation can be done without prior notice to the beneficiaries (exporter party). An irrevocable credit is a credit, the terms and conditions of which can neither be amended nor cancelled
3) Commercial Letter of Credit Means a commercial letter of credit is a bank issued document that ensures a supplier to a company gets paid for the goods and services it provides.
4) Letter of Credit at Sight Means That At Sight Letter of Credit is a letter of credit (DLC) that is payable once the exporter/seller meets all of the requirements of the letter of credit.. This type of DLC provides the fastest mode of payment to the exporter/seller, when selling to their overseas importers/buyers.
5) Stand-By Letter of Credit Means A standby letter of credit, abbreviated as SBLC, refers to a legal document where a bank guarantees the payment of a specific amount of money to a seller if the buyer defaults on the agreement. An SBLC acts as a safety net for the payment of a shipment of physical goods or completed service to the seller, in the event something unforeseen prevents the buyer from making the scheduled payments to the seller. In such a case, the SBLC ensures the required payments are made to the seller after fulfillment of the required obligations.
6) Confirmed Letter of Credit Means A confirmed letter of credit is a letter of credit on which at least two banks namely the issuing bank and the confirming bank are obliged to make payment. It directly creates the obligation of a financing bank doing business in the exporter’s financial guarantee to a contract of sale.
7) Unconfirmed Letter of Credit Means Unconfirmed. A letter of credit which has not been guaranteed or confirmed by any bank other than the bank that opened or issued the DLC. The advising bank merely informs like a postal service to the beneficiary of the letter of credit terms and conditions.
8) Revolving Letter of Credit Means A revolving. That it is a special letter of credit type which is structured in a way so that it revolves either in value or in time period covering multiple-shipments over a long period of time under single letter of credit. This is used for long term contracts where the buyer does not open short term DLC's for a long term contractual agreement.
9) Transferable Letter of Credit Means A Transferable DLC. That means a documentary credit under which the Beneficiary (first Beneficiary) may request the bank specifically authorized in the credit to transfer the credit, available in whole or part, to one or more secondary Beneficiary(ies) (the exporter party).
10) Non-Transferable Letter of Credit Means n Non-Transferable. That means the bank refuses to allow the transfer of credit to any other beneficiary other than the first beneficiary. This means, it cannot be transferred to any party.
11) Back-to-Back Letter of Credit Means A back-to-back DLC. This is issued using an existing export L/C opened in customers favor with consistent terms and conditions as security and the source of repayment.
12) Front-to-Back Letter of Credit Means For Front-to-Back DLC, the company opens the LC to supplier before receiving LC from its buyer and will be received within a specific time. This type of transaction is generally used for bulk commodity trading. The Document Collection is a compromise between letters of credit and invoice payments
13) Red Clause Letter of Credit Means A red clause DLC that facilitates pre-shipment finance for the beneficiary. It is often used to assist suppliers in paying for raw materials and covering the labor cost or perhaps an intermediary, who needs financing to conclude a transaction.
14) Green Clause Letter of Credit Means it is a normal documentary letter of credit or DLC, which provides a secured form of credit in that exporters can draw an agreed percentage of the value of the goods to be shipped against presentation of warehouse receipts as collateral.
15) Direct Pay Letter of Credit that certain letter of credit issued pursuant to the Reimbursement Agreement. In other words, Direct Pay Letter of Credit means a letter of credit issued by a financial institution (The Bank) chosen by the buyer providing for the direct payment to a Manufacturer or Exporter party.
16) Usance Letter of Credit Means A Usance or a Deferred Letter of Credit; is also known as a time or term LC. This will be a letter of credit that is payable at a predetermined or future point in time following the conditions in the LC being fulfilled and the confirming documents being presented.
17) Deferred Payment Letter of Credit (Same as Usance) Means A deferred payment letter of credit, also known as a usance letter of credit, is a commercial letter of credit that provides for the beneficiary to be or will be paid in future, not at the time the beneficiary makes a complying presentation, but at a later, specified, maturity date.
Courtesy to Financialdealz.com website for above useful info that covers Financial Solutions for International Trade Finance and Advisory services such as RWA Letter, Bank Comfort Letter, Blocked Funds Letter, MT799 Pre Advice/POF, SBLC MT760 Block/Guarantee of Funds, Verification of Deposit, Account Statement/Tear Sheet, Bank to Bank Verification, Performance Bond etc.
