Types of Letter of Credit (LC)
1. Irrevocable Letter of Credit: An irrevocable LC offers the seller the highest level of security and cannot be changed or revoked without the approval of all parties.
2. Revocable Letter of Credit: A LC that is revocable may be altered or terminated by the issuing bank without the seller’s approval.
3. Transferable Letter of Credit: A transferable letter of credit (LC) enables the original seller to assign all or a portion of the LC to another party.
4. Non-Transferable Letter of Credit: A LC that is not transferable prohibits the original recipients from assigning any portion of the LC to a different entity.
5. Red Clause Letter of Credit: An LC with a red clause contains a unique provision that permits the seller to receive payment in advance prior to the items being sent.
6. Green Clause Letter of Credit: A green clause letter of credit features a provision that allows both an advance payment and after the products have been dispatched, the purchase of extra goods or services.
7. Confirmed Letter of Credit: A confirmed LC includes a confirming bank that adds its own guarantee to the LC on top of the issuing bank’s guarantee.
8. Unconfirmed Letter of Credit: An unconfirmed LC is entirely dependent on the guarantee provided by the issuing bank. Even if the seller still has some security, it can be viewed as riskier than an LC that has been confirmed.
9. Back-to-Back Letter of Credit: In this, a seller who is also a buyer may secure a second LC to pay for products from their own suppliers by using the first LC as security.