In today's increasingly prosperous world, international letter of credit, as an important payment tool, provides a safe and convenient transaction guarantee for buyers and sellers. So, what are the types of international letters of credit? This article will reveal the types of international letters of credit for you in detail, so that you can be more comfortable in the world**.
1. Documentary credit
A documentary credit is the most common type of international letter of credit, which requires the beneficiary (seller) to submit certain documents, such as bills of lading, invoices, insurance policies, etc., after the goods are shipped, as the basis for payment by the negotiating bank. The documentary credit effectively reduces the risk of both parties to the transaction, and ensures the timely payment of the goods and the timely delivery of the goods.
2. Standby letter of credit
A standby letter of credit, also known as a guarantee letter of credit, is a standby payment guarantee issued by the issuing bank to the lender at the request of the borrower. Under a standby letter of credit, the issuing bank undertakes to assume the responsibility for payment when the beneficiary submits the required documents. A standby letter of credit is often used to secure a borrower's repayment obligations, providing the lender with additional credit protection.
3. Revocable letter of credit
A revocable letter of credit means that the issuing bank has the right to modify or cancel the letter of credit at any time without the consent of the beneficiary. This type of letter of credit is risky because the issuing bank may unilaterally modify or cancel the letter of credit after the goods have been shipped, resulting in the beneficiary not receiving payment for the goods. Therefore, in practice, the use of revocable letters of credit is relatively rare.
4. Irrevocable letter of credit
An irrevocable letter of credit means that once the issuing bank issues a letter of credit, it shall not be modified or cancelled without the consent of the beneficiary, the issuing applicant and the confirming bank (if any). This type of letter of credit provides a high level of credit protection to the beneficiary, as the issuing bank must fulfill its payment obligations in accordance with the terms of the letter of credit. In practice, irrevocable letters of credit are widely used.
5. Transferable Credit
Assignment of a letter of credit means that the beneficiary can transfer part or all of the rights and interests in the letter of credit to a third party. This type of letter of credit is usually used in the activity of the intermediary, and the intermediary can transfer the letter of credit to the actual merchandiser in order to complete the transaction. The use of transfer letters of credit helps to simplify the transaction process and reduce transaction costs.
Understanding the types of international letters of credit and their characteristics is essential for businesses and individuals involved in the world. Choosing the right type of international letter of credit can effectively reduce transaction risks, improve transaction efficiency, and escort the smooth development of the world.