Types of Letters of Credit

Types of Letters of Credit

By Revocability

• Irrevocable LC: Cannot be amended or cancelled without the consent of all parties. Under UCP 600, ALL letters of credit are irrevocable unless explicitly stated otherwise.
• Revocable LC: Can be amended or cancelled by the issuing bank at any time without prior notice — rarely used today.

By Confirmation Status

• Confirmed LC: A second bank (confirming bank) adds its own independent undertaking to pay. Protects the beneficiary from issuing bank risk and country risk.
• Unconfirmed LC: Only the issuing bank's undertaking. The advising bank has no payment obligation.

By Payment Terms

Type	When Payment Occurs
Sight LC	Immediately upon presentation of conforming documents
Usance/Deferred Payment LC	At a fixed future date (e.g., 60, 90, 180 days after B/L date)
Acceptance LC	Beneficiary draws a bill of exchange; bank accepts it (creates a banker's acceptance)
Negotiation LC	Nominated bank purchases documents before maturity

Special Types

• Standby LC (SBLC): Functions as a guarantee; called upon only if the applicant defaults. Governed by ISP98 or UCP 600.
• Revolving LC: Reinstates to its original amount after each drawing — used for regular shipments.
• Transferable LC: Can be transferred by the first beneficiary to one or more second beneficiaries.
• Back-to-Back LC: New LC opened by a middleman using the original LC as collateral.
• Red Clause LC: Allows advance payments to the beneficiary before shipment.