4 Types of Letters of Credit – Top 10 Facts

Commercial letters of credit, revolving letters of credit, traveler’s letters of credit, and confirmed letters of credit are among the different kinds of letters of credit.

Business Letter of Credit

This is a direct payment mechanism where the beneficiary gets paid by the issuing bank. A standby letter of credit, on the other hand, is a backup payment method in which the bank only pays the beneficiary when the holder is unable to.

Continuous Letter of Credit

In accordance with the terms of this type of letter, the client may participate in an unlimited number of drawings within a given time frame.

Letter of Credit for Travel

This letter assures travelers that issuing banks would accept drafts made at specific foreign banks.

Letter of Credit Verified

An alternative bank to the one that issued the letter of credit will guarantee a confirmed letter of credit. The second bank is the confirming bank, which is frequently the bank of the seller. If the holder and the issuing bank falter, the confirming bank guarantees payment under the letter of credit. In foreign transactions, this arrangement is often requested by the issuing bank.