WWCB2B.COM raise funding and arranges Confirmed and Unconfirmed Documentary
Letters of Credit
for Businesses Worldwide.
Types
of
Letter of Credit
Revocable
This is an LC that can be cancelled or amended by the applicant or
the Opening Bank without prior notice to the Exporter.
Irrevocable
With an irrevocable Letter of Credit the Issuing Bank gives
its irrevocable undertaking to pay if all the terms of the LC are
met. The Issuing Bank can only amend or cancel its undertaking if
all parties to the LC consent to the change.
NB: Although there are two types of Letter of Credit: revocable and
irrevocable, LCs dealt with by Barclays are irrevocable. Under
UCP600 (Uniform Customs and Practice for Documentary Credits), LCs
are assumed to be irrevocable.
Confirmed
A Confirmed LC is one to which a second bank, usually in the
Exporter's country and at the Exporter's request, adds its own
commitment (confirmation) that payment will be made. Confirmation is
generally used when there is perceived to be some risk that the bank
issuing the Letter of Credit may not be able to fulfil its
obligation to pay. This could be due to bank failure or instability
in the country of the Issuing Bank.
Unconfirmed
If the LC is unconfirmed, the Advising Bank merely informs
the Exporter of the terms and conditions of the LC without adding
its own undertaking to pay or accept under the terms of the LC.
Transferable
A Transferable Letter of Credit is one that can be transferred from
the first Beneficiary to one or more additional Beneficiaries by the
Transferring Bank.
It is normally used in situations where a supplier sells through an
intermediary or 'middleman' to the ultimate Importer and is in a
strong enough bargaining position to insist upon payment by
Letter
of Credit. By using a Transferable Letter of Credit, the
intermediary is able to provide payment by LC to their supplier
without the need for their own credit line with the transferring
bank. An LC is only transferable if it is expressly stated to be so
by the Issuing Bank.
Others
There are other less commonly used variations of
Letter of
Credit, for example Back-to-Back, Red Clause and Revolving. Barclays
can advise you of the type of
Letter of Credit best suited to meet
your needs. More detailed information on other types of LC.
A Documentary Letter of Credit (LC) is a written undertaking
given by a bank on behalf of an Importer to pay the Exporter a given
sum of money within a specified time, providing that the Exporter
presents documents which comply with the terms laid down in the
Letter of Credit.
Letters of Credit can be for any amount, in any freely traded
currency, and, subject to the presentation of compliant documents,
may be payable:
at sight, which means as soon as a
compliant set of documents are presented to the paying bank; or,
after a specified term, e.g. at
30, 60, 90 or 180 days of sight or Bill of Lading date.
If the documents are not presented exactly as specified in the
Letter of Credit, payment will not be made unless the Importer gives
their authority to waive or amend the specified condition.
A fundamental principle of
Letters of Credit is that banks deal with
documents and not with the goods to which the documents refer.
For example, if the Importer is not happy with the quality of the
goods but the documents comply with the terms and conditions of the
Letter of Credit, the Importer's bank is obliged to pay the
Exporter.
Parties involved in a Letter of Credit transaction
In the process of a Letter of Credit transaction, there are
essentially four parties involved. These parties can be referred to
by a number of terms, outlined below.
Buyer meaning Importer, Applicant,
Accountee or Accreditor.
In this guide we use the term Importer.
Seller meaning Exporter or
Beneficiary; here we use the term Exporter.
The Issuing or Opening Bank (Importers Bank)
The Advising/Confirming Bank - usually a bank in the Exporters
country which may or may not be the Exporters Bank.
|
