Different types of LC.

 Definition of LC: It means Letter of credit. It is a commitment letter issued by a bank on behalf of the importer in favor of the exporter. Through this letter bank make commitment to the exporter that increase of importer unable to pay the bill after receiving the goods according to all terms and condition then bank will pay the bill to the exporter.

LC

1. Commercial LC: A standard LC, also called as documentary credit.

2. Revocable: The LC can be cancelled or changed at any time by the buyer or the issuing bank without any notification. Such types of letter are not used frequently as the beneficiary is not provided any protection.

3. Irrevocable LC: 

This LC cannot be cancelled or modified without consent of the beneficiary (Seller). This LC reflects absolute liability of the Bank (issuer) to the other party.

4. Confirmed LC: In addition to the Bank guarantee of the LC issuer, this LC type is confirmed by the Seller's bank or any other bank. Irrespective to the payment by the Bank issuing the LC (issuer), the Bank confirming the LC is liable for performance of obligations.

5. Unconfirmed LC: A letter of credit that is assured only by the issuing bank and does not need a guarantee by the second bank. Mostly the letters of credit are an unconfirmed letter of credit.

6. Transferable LC: A letter of credit that allows a beneficiary to further transfer all or a part of the payment to another supplier in the chain. This generally happens when the beneficiary is just an intermediary for the actual supplies. Such letter of credit allows the beneficiary to provide its own documents but transfer the money further.

7. UN-Transferable LC: A letter of credit that doesn’t allow transfer of money to any third parties. The beneficiary is the only recipient of the money and cannot further use the letter of credit to pay anyone.

8. Back-to-Back LC: This LC type considers issuing the second LC on the basis of the first letter of credit. LC is opened in favor of intermediary as per the Buyer's instructions and on the basis of this LC and instructions of the intermediary a new LC is opened in favor of Seller of the goods.

9. Restricted: In the case of a restricted LC only one nominated bank can be used for negotiation in relation to a letter of credit. Therefore, the authorization of the issuing bank to make payment to the beneficiary is restricted to a specific nominated bank.

10. Unrestricted: The bank is not specified, which means that the letter of credit can be negotiated through any bank of the beneficiary’s choice.

11. Stand-by LC: This LC is closer to the bank guarantee and gives more flexible collaboration opportunity to Seller and Buyer. The Bank will honour the LC when the Buyer fails to fulfill payment liabilities to Seller.

12. Red Clause LC:  The seller can request an advance for an agreed amount of the LC before shipment of goods and submittal of required documents. This red clause is so termed because it is usually printed in red on the document to draw attention to "advance payment" term of the credit.

13. Green clause LC: A letter of credit that pays advance to the seller just not against the written undertaking and a receipt, but also a proof of warehousing the goods.

14. Deferred Payment LC: According to this LC the payment to the seller is not made when the documents are submitted, but instead at a later period defined in the letter of credit. In most cases the payment in favor of Seller under this LC is made upon receipt of goods by the Buyer.

15. Direct pay LC: A letter of credit where the issuing bank directly pays the beneficiary and then asks the buyer to repay the amount. The beneficiary may not interact with the buyer.  

16. At sight: If a LC is at sight, it is payable as soon as the documents have been verified and presented. 

17. Term (Usance): Payment can be deferred in the case of a usuance LC which gives time for the buyer to inspect or even sell the goods.