Types of Letters of Credit - Credit Suisse

7/24/2019 Types of Letters of Credit - Credit Suisse

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Transferable L/C

Transferable letters of credit are particularly well adapted to the requirements of international

trade. They allow an intermediary to transfer a letter of credit to a supplie r, thus enabling the

intermediary to reduce the extent to which it uses its own funds to process business

transactions.

Standby L/C

Standby letters of credit are similar to guarantees. Due to their documentary nature, they fall

under the UCP (Uniform Customs and Practice for Documentary Credits). Standby letters of

credit can also be issued under ISP98 (International Standby Practices).

If the guaranteed service/payment is not provided, the seller can invoke the bank's oblig ation to

pay by submitting, together with any other documents that the letter of credit might require, a

declaration stating that the letter of credit customer has failed to meet his obl igations/payment.

Revolving L/C

If the buyer requests partial deliveries of the ordered goods at specific intervals (contract for

delivery by installments), payment can be made under the terms of a revolving letter of credit

that covers the value of each consecutive installment. The bank is normally liable for the total

value of all agreed partial deliveries.

However, the second partial payment is not effective until the first installment has been paid,

and so forth.

Red Clause L/CIn the case of a red clause credit (letter of credit with advance payment), the seller can request

an advance for an agreed amount (defined in the terms and conditions of the letter of credit)

from the correspondent bank. This advance is basically intended to finance the manufacture or

purchase of the goods to be delivered under the letter of credit. The advance is normally paid

against receipt and a written undertaking from the seller to subsequently deliver the

transportation do cuments before the credit expires.

Green Clause L/C

Unlike the red clause letter of credit, in the case of a green clause letter of credit, the advance is

normally paid not only against receipt and a written undertaking from the seller to subsequently

deliver the transportation documents before the credit expires, but also against receipt of an

additional document providing proof that the goods to be shipped have been warehoused.

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Types of Letters of Credit - Credit Suisse

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