11/21/2015

TypesofLettersofCreditCreditSuisse

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LettersofCredit
Lettersofcreditaredistinguishedbytheirdifferenttypesofuse.
TypesofLettersofCredit

TypesofLettersofCredit
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Sight
Underasightletterofcredit,paymentismadetothesellerimmediatelyaftertherequired
documentshavebeensubmittedtotheauthorizedbank,providedtheconditionsintheletterof
credithavebeenmet.Banksare,however,allowedareasonableperiodoftimeforchecking
purposes(notmorethanfiveworkingdaysaftertheyreceivethedocuments).

DeferredPayment
Inthecaseofaletterofcreditwithdeferredpayment,thepaymenttothesellerisnotmade
whenthedocumentsaresubmitted,butinsteadatalatertimedefinedintheletterofcredit.
IntheFarEast,thiskindofdocumentarycreditisalsoknownasa"usanceL/C."

Acceptance
Inthecaseofanacceptancecredit,thepaymenttothesellerisnotmadewhenthedocuments
aresubmitted,butinsteadatalatertimedefinedintheletterofcredit.
Thesellercanrequestadiscountfromthebankthatacceptedthebillofexchange,orfrom
anotherbank,andthusdrawtheamountofthebillminusthediscountatanytimeafterthe
documentshavebeensubmitted.

NegotiableCredit
UnderUCP600(UniformCustomsandPracticeforDocumentaryCredits,2007revision,article
2)negotiationmeansthepurchasebythenominatedbankofdrafts(drawnonabankotherthan
thenominatedbank)and/ordocumentsunderacomplyingpresentation,byadvancingor
agreeingtoadvancefundstothebeneficiaryonorbeforethebankingdayonwhich
reimbursementisduetothenominatedbank.
Unfortunately,theterm"negotiablecredit"isunderstoodandappliedindifferentwaysin
differentpartsoftheworld.

ParticularTypes
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11/21/2015

TypesofLettersofCreditCreditSuisse

TransferableL/C
Transferablelettersofcreditareparticularlywelladaptedtotherequirementsofinternational
trade.Theyallowanintermediarytotransferaletterofcredittoasupplier,thusenablingthe
intermediarytoreducetheextenttowhichitusesitsownfundstoprocessbusiness
transactions.
StandbyL/C
Standbylettersofcreditaresimilartoguarantees.Duetotheirdocumentarynature,theyfall
undertheUCP(UniformCustomsandPracticeforDocumentaryCredits).Standbylettersof
creditcanalsobeissuedunderISP98(InternationalStandbyPractices).
Iftheguaranteedservice/paymentisnotprovided,thesellercaninvokethebank'sobligationto
paybysubmitting,togetherwithanyotherdocumentsthattheletterofcreditmightrequire,a
declarationstatingthattheletterofcreditcustomerhasfailedtomeethisobligations/payment.
RevolvingL/C
Ifthebuyerrequestspartialdeliveriesoftheorderedgoodsatspecificintervals(contractfor
deliverybyinstallments),paymentcanbemadeunderthetermsofarevolvingletterofcredit
thatcoversthevalueofeachconsecutiveinstallment.Thebankisnormallyliableforthetotal
valueofallagreedpartialdeliveries.
However,thesecondpartialpaymentisnoteffectiveuntilthefirstinstallmenthasbeenpaid,
andsoforth.
RedClauseL/C
Inthecaseofaredclausecredit(letterofcreditwithadvancepayment),thesellercanrequest
anadvanceforanagreedamount(definedinthetermsandconditionsoftheletterofcredit)
fromthecorrespondentbank.Thisadvanceisbasicallyintendedtofinancethemanufactureor
purchaseofthegoodstobedeliveredundertheletterofcredit.Theadvanceisnormallypaid
againstreceiptandawrittenundertakingfromthesellertosubsequentlydeliverthe
transportationdocumentsbeforethecreditexpires.
GreenClauseL/C
Unliketheredclauseletterofcredit,inthecaseofagreenclauseletterofcredit,theadvanceis
normallypaidnotonlyagainstreceiptandawrittenundertakingfromthesellertosubsequently
deliverthetransportationdocumentsbeforethecreditexpires,butalsoagainstreceiptofan
additionaldocumentprovidingproofthatthegoodstobeshippedhavebeenwarehoused.

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