Revolving LC

This LC allows to make the shipment of the goods in prescribed times and value as mentioned in the lc on revolving basis and payment is made accordingly. after drawing is made the credit reverts to its original amount for re use by beneficiary without requiring specific amendment to the credit. there are two types of revolving credit. in the first type of revolving credit credit gets reinstated immediately after a drawing is made. for example, if a credit is opended for rs. 100000. and beneficiary draws an instruments for rs. 100000. immediately after the drawing the credit, reverts to its original value of rs 100000. allowing beneficiary to draw again and so on. in the second type of revolving credit the credit reverts to original amount only after it is confirmed by the issuing bank which normally occurs after the documents reach the issuing bank.

Stand By LC

A stand by LC is not an ordinary letter of credit but it is a sort of standby or back up credit.These credit are generally used as a substitute for performance guarantee or for securing loans. A drawing under a stand by credit is made only when the beneficiary requires claiming the sum for the non performance of the job or as stipulated in the credit or contract between the applicant and beneficiary. The documents generally called for under such credits are simple statement of claim or proof of delivery of goods or certificates of non performance. This type of letter of credit is opended mostly by banks in countries where by law they are precluded from issuing guarantees and is such cases this type of credit issued as substitute for performance or other financial guarantees. Even though standby credit is mere substitute for guarantee, it has been developed as an all purpose financial support instrument. No transport document is demanded under this credit.

Confirmed / Unconfirmed LC

When the Letter of credit is guaranteed by adding payment confirmation by the advising bank or any third bank ( Confirming Bank ) on behalf of the opening bank, it is termed as a confirmed LC otherwise it is an unconfirmed LC. The confirming bank also becomes a party to the contract of LC after confirming it. Generally, the confirmation to a credit is desired by beneficiary from a bank known to him preferably the one located in his country so that his risk becomes localized and he can deal easily with a local bank rather than dealing with a bank abroad which has issued the LC. A confirmed LC is preferred when the beneficiary is not able to ensure payment surety from the issuing bank and or have less faith on it. confirmed LC is costly since it includes the confirmation charge from the confirming bank. The LC is confirmed by another bank only when it is advised to do so by the issuing bank. Confirmation can be added only to irrevocable and not to the revocable credits.

Revocable / Irrevocable LC

LC, which can be cancelled or amended by the applicant at any time within the validity without prior consent of the beneficiary, is called Revocable LC, In normal course any amendment to or cancellation of letter of credit is done only with the consent of the parties of letter of credits i.e issuing bank, applicant and beneficiary. However under a revocable Letter of credit the applicant or issuing bank can amend or cancel the same without the consent of other parties or notice because the issuing bank is reserved with the right to revoke the same without notice to other parties. revocable letter of credit are very rarely used.a re-vocabel LC must indicate so in the letter of credit itself. in absence of which LC will be deemed as irrevocable as per UCPDC 500.

LC which can not be cancelled or amended within the validity without prior consent of the parties involved in Lc. especially beneficiary is called irrevocable LC. At Lc that does not specifically indicate as revocable is deemed as irrevocable LC.

Letter of credit ( LC)

Letter of Credit

Letter of credit is a conditional bank undertaking of payments. It is a written undertaking by a bank ( issuing bank ) given to the seller ( beneficiary ) at the request, and on the instruction of the buyer ( applicant ) to pay at sight or at a determinable future date up to a stated sum of money, within a prescribed time limit and against stipulated documents or other conditions. The issuing bank is putting out its credit and good name for the sake of the buyer.

Letter of credit are commanly used to reduce credit risk to sellers in both domestic and international sales arrangements. by having a bank issue a letter of credit, in essence one is substituting the bank's credit worthiness for that of the customer. Almost all foreign trade in Nepal is carried out through Letter of Credit but other few methods such as Documentary Collection, advance payment, cash against documents etc are also popular in foreign trade.