Sight LC: A sight LC requires the issuing bank or nominated bank to make immediate payment once the beneficiary submits documents that comply with the LC terms. It is used when the seller requires quick payment and does not wish to offer credit to the buyer.
Usance LC: Under a usance LC, payment is made after a specified credit period. The seller ships the goods and submits documents but receives payment only after the agreed tenor. This arrangement supports buyers who need time to sell the goods before making the payment.
Irrevocable LC: An irrevocable LC is a credit that cannot be modified or cancelled without the consent of all involved parties—the issuing bank, the beneficiary, and Confirming bank if any. It provides a firm undertaking from the issuing bank to honour payment upon compliant document presentation. This type of LC is the standard and legally accepted form used globally.
Revocable LC: A revocable LC is a credit that can be amended or cancelled by the issuing bank at any time without notifying the beneficiary. Because it does not provide security to the seller, it offers no binding guarantee of payment. For this reason, revocable LCs are practically not used in international trade today and are not permitted under UCP 600, which recognizes only irrevocable credits.
Confirmed LC: A confirmed LC is an LC to which a second bank, usually in the beneficiary’s country, adds its own independent guarantee of payment. The confirming bank undertakes to pay even if the issuing bank fails to do so. This type of LC provides additional security to the seller, especially when dealing with high-risk countries, unfamiliar banks, or unstable economic environments.
Transferable LC: A transferable LC allows the original beneficiary to transfer all or a portion of the LC value to another party, typically the actual supplier. It is commonly used by traders or intermediaries who do not supply goods directly but arrange procurement through another supplier. The LC can be transferred only once.
Back-to-Back LC: A back-to-back LC is created when a trader uses an LC received from the buyer to request a second LC in favour of their supplier. Both LCs are separate instruments but linked to the same underlying trade. It is used when the intermediary cannot transfer the original LC due to confidentiality or pricing reasons.
Revolving LC: A revolving LC gets replenishes its value after each drawing until the total contract quantity or value is completed. It is ideal for long-term supply arrangements involving repetitive shipments, eliminating the need to issue multiple LCs for recurring transactions.
