Letters of Credit - How many are they?

There are several different kinds of Letters of Credit, with different benefits and utilities. What kind of Letter of Credit should be used will depend on what your needs are.

THE NEGOTIABLE LETTER OF CREDIT - Probably the most know and used. Might be confirmed or not. Opened from a buyer to a seller through the bank system, clearly states, goods, amount, payment time (at sigh or deferred) and validity. When you present documents to the advising/negotiating/ confirming bank, (and if everything is in order) you'll receive your payment in the agreed timming

THE TRANSFERABLE LETTER OF CREDIT - Most like the negotiable, but with the characterisitic that it can be transfered in part or parts (amount and quantities) from the first beneficiary to a second beneficiary, maintaining the specific details like documents required, dates, Port of shipment etc. And be the time of negotiating documents, the first beneficiary usually only has to present it's own invoices and drafts (if necessary). It's usefull when you are selling goods that you have to buy to someelse.

THE RED CLAUSE LETTER OF CREDIT - In this Letter of Credit the orderer allows a certain amount to be payed to the beneficiary in advance. Usually this Letter of Credit is used when, special manufacturing equipment or raw materials have to be purchased for producing an order. In this case the Buyer takes some risk in financing (in advance) the seller.

THE BACK-TO-BACK LETTER OF CREDIT - Basically when you receive a Letter of Credit non transferable and you need to purchase goods a Back-to-back can be your solution. This Letter of Credit is suported by another Letter of Credit where you are the beneficiary. When opening a Back-to-Back some cautions have to be taken into consideration, in order that the received documents can be used and negotiated for the initial Letter of Credit

THE REVOLVING LETTER OF CREDIT - When the amount of the Credit is used, it is reposted from the beginning. This Letter of Credit is most commonly used when we are dealing with regular shipments (for instance 2500MT monthly) It sates for how may shipments and for how long this Letter of Credit will be valid

THE STAND-BY LETTER OF CREDIT - It's a common payment term in countries like USA. Basically it works as a payment warranty, if buyer fails to pay within the agreed timming, then seller presents documents for negotiation with the bank

Although knowing that this isn't an exaustive presentation on Letter of Credits, I truly hope that it will be helpfull for someone.

If you have any doubt concerning this or other relted subject, please call Mr.Paulo Nunes Porto - e-mail: paulonunes.porto@gmail.com or at the mobile phone (+351 96 9446897)