Letter of credit types are a guarantee in which one party is required to guarantee something to another party. The guarantee is given by the banks to sellers that they will be paid for a large transaction. This is particularly common in international or foreign exchanges.it is considered as a form of payment insurance from a financial institution or another accredited party to the transaction.
There are four major types of letter of credit.
Revocable Letter of Credit
In this category, the letter of credit can be revoked by a bank which issues a letter of credit without the agreement of the beneficiary.
Irrevocable Letter of Credit
If an applicant applies for a duty credit scrip/ discharge of EO against a confirmed irrevocable letter of credit or bill of exchange that is unconditionally co-accepted/ avalised/ guaranteed by a bank, this is confirmed and certified by exporter’s bank in a relevant Bank Cert Revocable Letter of Credit.
In this type guarantee of Payment is available for the customer. If the beneficiary is not paid by its customer, then the payment can be demanded from the Bank by forwarding the copy of the invoice that was not paid and the supporting documentation.
Revolving Letter of Credit
In this category, the implementation will be on the regular shipments of the same commodity between the supplier and the customer. During the procedure when it is eliminating there will be need to issue a Letter of Credit for every individual transaction.