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    • A revocable letter of credit can be change or withdrawn without notifying the beneficiary.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
  • A negotiation letter of credit can be presented to any bank.
  • A straight letter of credit can only be paid in the country of the Paying Bank.

• 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.

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© 2004 John Michael Pierobon

Notes