Letter Of Credit Types
- There are several types of letters of credit.
- The differences are found in the wording.
- Revocable versus Irrevocable
- You should always insist and carefully check that a letter of credit is irrevocable.
- Once an irrevocable letter of credit is open it cannot be changed without the written consent of all parties including the beneficiary.
- A revocable letter of credit can be change or withdrawn without notifying the beneficiary.
- Confirmed versus Advised
- Confirmed is preferred, as the Confirming Bank promises to pay.
- Advised does not guarantee the creditworthiness of the Opening Bank.
- Straight versus Negotiation
- Sight versus Usance
- At sight means the Beneficiary is paid as soon as the Paying Bank has determined that all necessary documents are in order.
- Usance time can be between 30 and 180 days after the bill of lading date.
- This is a form of delayed payment, and should be avoided.
© 2004 John Michael Pierobon