Sunday, June 17, 2007

Types of Letters of Credit

Documentary; Merchandise, Commercial, Trade

The majority of LCs issued are in payment for goods in shipment or current services performed. Payment is normally made against documents for goods shipped. (Article 1&2, UCP 500)

Standby

Normally, this type of LC functions like a guarantee. This type of credit can be drawn against only upon performance of service or financial obligation default. It is a definite undertaking of the issuing bank. Similar to commercial LCs, standby's are governed by the International Standby Practices 1998 (ISP98)

Revocable

A revocable letter of credit may be amended or canceled by the issuing bank at any moment and without prior notice to the beneficiary (Article 6 & 8, UCP 500)

Unconfirmed:

Bears only the obligation of the issuing bank. The beneficiary should look to the credit worthiness of only the issuing bank, and not to any intermediary (Article 9, UCP 500)

Confirmed:

Is a credit in which a second obligation is added to the letter of credit by another bank (Article 9, UCP 500)

Sight:

Payment is at sight, which means that the drafts and documents are honored, if in order, by making payment without delay.

Time, Ussance:

The draft honored by accepting it for payment at a future date. Payment is delayed until the maturity of the draft.

Transferable credit:

Can be transferred by the original beneficiary to one or more other parties. It is normally used when the first beneficiary does not supply the merchandise himself, but is a middleman and wants to transfer all or part of his rights to the actual supplier (Article 48, UCP 500)

FOR MORE INFORMATION PLEASE CONTACTS:-

Mr.Goh

Email: lettercredit.sblc@gmail.com

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