Types of Letter of Credit

Last updated 11 June 2020
Types of Letter of Credit

Letters Regarding the Strength of the Bank’s Pledge

This Letter of Credit is divided into two parts, which are irrevocable and segmental credit.

Revocable Credit

This credit is subject to cancellation and may be amended by the issuing bank at any moment and without the recipient’s notice

This Letter of Credit is of little use because it has many issues.

The bank controls the issuance and cancellation at any time without consulting the beneficiary.

Sectoral Dependence

Letter of Credit that is not subject to cancellation and is not subject to change or cancellation except by mutual consent or consultation of the parties.

The Letter of Credit is the most common and widely used and provides guarantees for the issuer to receive the value of the funds in the documents when they comply with the conditions in the contract.

Letter of Credit in Terms of the Strength of The Undertaking, The Sender Bank

Unsupported Letter of Credit

In this appropriation, the bank should pay the issuer, and usually, the correspondent bank is only an intermediary.

In this case and the implementation of the credit against the commission and this bank is not obligated to the parties if it breaches any conditions stated in the credit.

  Letter of Credit

Enhanced Letter of Credit

It is a credit that is added by the correspondent bank in the recipient’s country that pledges it to the pledge of the bank that opened the credit,

He shall be obligated to pay all amounts and the value as long as the documents conform to the conditions.

This credit has two pledges from two banks, first the Letter of Credit and the second correspondent bank in the recipient’s country.

The source enjoys a level of reassurance, and guarantees are sufficient.

Letter of Credit Payment of the Buyer Ordering the Opening of The Credit

Fully Covered Letter of Credit

Letter of Credit who pays and covers all expenses completely by the credit opener and in this case the bank is a mediator only to deliver the amount and the financial burden does not fall on the bank by the credit opener and the bank is responsible first and foremost for any procedures or conditions that do not match in the contract.

Partially Covered Letter of Credit

The letter in which the customer opens Letter of Credit and pays a portion of the amount of the goods and when the documents arrive in full the rest of the amount is paid or when the goods arrive and in this case, the bank bears the remaining costs and bears all the risks.

Uncovered Letter of Credit

Letter of Credit, in which the bank grants full financing to the customer within the limits of the credit amount, where the bank pays the amount to the beneficiary upon receipt of the documents, and the banks differ in terms of commission and interest on this Letter of Credit.

  Payment Methods in Foreign Trade

Letter of Credit in Terms of Forms

Convertible Letter of Credit

Letter of Credit is irrevocable stipulating that the beneficiary has the right to request the bank authorized to pay to place this credit at the disposal of another beneficiary, and this type is often used if the first beneficiary is an intermediary or agent of the importer in the country of export, then he transfers the Letter of Credit in turn to the actual exporters of the goods For a specific commission or takes advantage of spreads.

Renewed Letter of Credit

Letter of Credit that opens with a specified value and for a specified period and its value is automatically renewed if it is implemented or used, so that the beneficiary can repeat the submission of documents for a new process within the limits of the credit value, during its validity period, and the number of times specified in the approval and the renewal of the credit may be based on the period or Amount basis.

Letter of Credit Full Back

In this case, the beneficiary of the original credit shall be an intermediary and not a producer of the goods, such as being an agent for the product only, and as in the case of transferable credit, this credit is used in the event the importer refuses to open a transferable credit.

Letter of Credit by Nature

Letter of Credit Export

It is the credit that is opened by the foreign buyer in favor of the exporter inside to purchase the local commodities he sells.

Letter of Credit Import

It is the credit that is opened by the importer in favor of the exporter abroad to purchase a foreign commodity.

Also read: Letter of Credit in Saudi Arabia

اقراء المقالة باللغة اخرى : العربية

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