What are the main Types of Letter of Credits?/ Types of LC
- Letter of Credits
- SBLC – Stand by Letter of Credits
💓💓Letter of Credits
· The first type of LC is Letter of Credit is a payment assurance given
by the issuing bank, subject to acceptance of LC documents.
· Letter of credit, Primary Liability lies with the
bank to collect payment from the applicant and remit the funds to Beneficiary
according to the payment’s terms.
· In LC primarily there are 3 parties involve for the
LC. And can be more than three, i.e applicant, Applicant bank, beneficiary,
beneficiary bank, negotiating bank and confirming bank, intermediary Bank.
· · Thought, Letter of Credits are mainly used for international trade that there is instant where Local traders are used to secure the funds.
· Letter of credit are issued, advised, and negotiate
according to the latest version of Uniform Customs and Practice for Documentary
Credits. This is called as UCP rules And these rules are published by a
non-governmental international institution called International Chamber of
Commerce.
💛💛Standby Letters of Credit - SBLC
· Second Type of LC is Stand by letter of Credit (SBLC) is an instrument
that guaranteeing the payment to Beneficiary.
· SBLC contain below clause as usual and in case
applicant fail to fulfil the obligation under SBLC requirements, Beneficiary is
eligible to claim under SBLC. Accordingly below documents are required to
submit to the beneficiary Bank in most cases.
Below additional conditions can be included in the SBLC
SBLC is also subject to ICC rules as
per below swift example.
Letter of Credits can be categorized as per below based on their operation.
According to their operations, Letter of credits / below are the types of LC. Main types of LC are 7 types as listed below.
1) 💛 Revocable Letters of Credit
2) 💛 Irrevocable Letters of Credit
3) 💛 Unconfirmed Letters of Credit
4) 💛 Confirmed Letters of Credit
5) 💛 Clean Letters of Credit:
6) 💛 Transferable Letters of Credit
7) 💛 Back-to-Back Letters of Credit
💗💗Revocable Letters of Credit
What is Revocable LC?
Revocable LC means, LC amendment/cancelation can be
done without beneficiary’s consent.
UCP doesn’t allow to issue the
revocable letter of credit as the applicant /issuer can amend or cancel the
letter of credit any time without prior notice to the beneficiary.
Applicant has right to cancel and or amend the terms and condition of LC at any
time. This is badly affect the beneficiary’s business and therefore, UCP
strictly prohibits to operate LCs under this nature.
💗💗Irrevocable Letters of Credit
what is Irrevocable LC?
Irrevocable LC measn, the LC amendment / cancelation cannot
be done without beneficiary’s consent. and this is the most commonly used LC types.
Irrevocable Letters of Credit can be
amended by applicant according to the agreement with or without beneficiary.
However, if beneficiary is not agreeing for the amendment, that will be null
and void. In case of cancelation of LC, Beneficiary is still to be in agreement
with applicant in order to cancel the LC.
When applicant request for the
cancelation of LC if required, Bank will send a swift message to Beneficiary’s
Bank for the “beneficiary’s consent”. If they agreed only that can be done.
Application of LC is contained with
below heading in most of the Banks.
💗💗Unconfirmed Letters of Credit
what is unconfirmed LC?
Unconfirmed LC is the LC without any
guarantee of the payment even thought LC documents are clean/ with no
discrepancy.
This types of LC can be required when LC issuing
bank refused to pay LC funds / ( this is not happened in normal circumstances
as the banks regulated bodies are liable to coordinate the payments) and
Issuing bank became Bankrupt or something happened to the Bank. This can be
happed when violence, riots and many more. Mainly the countries where
categorized as high risk.
How
unconfirmed LC looks like in LC Application
How
unconfirmed LC looks like in LC swift
💗💗Confirmed Letters of Credit
what is confirmed LC?
This is understandable as the LC can
be confirmed by advising Bank or any intermediary Bank. In this case addition
LC charges will apply for LC confirmation charges.
Once LC is confirmed, LC funds are
secured and ensure to receipt the funds on time even if there is a delay in
applicant Bank. However, we need to make sure that LC documents to be presented
to Bank with NO discrepancy. There should be clean LC documents to receive the
funds under Confirmed LC. If there is a discrepancy. LC documents are referred
to applicant and based on their acceptance only beneficiary receive the money.
💗💗Transferable Letters of Credit
This types of LC can be transferable to
third party.
💗💗Back-to-Back Letters of Credit
Same LC can be advised by the
beneficiary and will be issued again as an applicant to supplier. The advising
bank of the first letter of credit becomes the issuing bank of the second L/C.
Back-to-Back letter of credits are
used when we purchase the goods and sale same items without any further
process.
This types of letter of credits are
used when we are in intermediate person / Company.
Back-to-back letters of credit are
actually made up of two separate Letter of credits, one LC is issued by the Applicant’s
(supplier) bank to the intermediary Party.
Second Letter of Credit is issued by
the intermediary's bank to the Beneficiary of intermediate Party (Seller).
In the both cases, LC terms should be
same in order to become Back-to-back LC.
this types of Back-to-Back of LC
transactions are primarily in place for the international trade.
Back-to-Back LC process
:40A:IRREVOCABLE
:20:00121251251202
:31C:200902
:40E:UCP LATEST VERSION
:31D:210314SINGAPORE
:50:ABC COMPANY LTD
XXXX, USA
:59:XYZ COMPANY LIMITED
XXXX, SINGAPORE
:32B:USD 5,000,000.00
:39A:00/00
:41A:SBININBB659
BY NEGOTIATION
:42C:60 DAYS FROM RECEIPT OF DOCUMENTS
AT LC ISSUING BANK COUNTER.
:42A:UARBAEAAXXX
:43P:ALLOWED
:43T:NOT ALLOWED
:44E:ANY PORT IN SINGAPORE
:44F:ABU DHABI, UAE.
:44C:210228
:45A:ENGINE SPARE PARTS
.
CIF - USA
:46A:1. BENEFICIARY'S SIGNED COMMERCIAL INVOICE(S)
IN ORIGINAL PLUS 4
COPIES, ATTESTED BY CHAMBER OF COMMERCE, ORIGINAL
MUST BE
LEGALIZED BY CONSULATE / OR LEGATION / OR EMBASSY
OF THE UNITED
ARAB EMIRATES, BEARING THE FOLLOWING CLAUSE(S). WE
HEREBY CERTIFY
THAT:
(A) THIS INVOICE IS AUTHENTIC.
This is a computer generated advice and does not
require a signature
(B) IT IS THE ONLY INVOICE ISSUED BY US FOR THE
GOODS DESCRIBED
HEREIN.
(C) IT SHOWS THEIR EXACT VALUE WITHOUT DEDUCTION OF
ANY DISCOUNT.
(D) THEIR ORIGIN IS SINGAPORE.
2. FULL SET (3/3) OF 'SHIPPED ON BOARD' OCEAN
BILL(S) OF LADING
BEARING THIS DOCUMENTARY CREDIT NUMBER, ISSUED TO
ORDER OF UNITED
ARAB BANK, SHARJAH, UAE, SHOWING FREIGHT PREPAID,
NOTIFY ISSUING
BANK AND APPLICANT. THE BILL OF LADING SHOULD ALSO
SHOW THE DATE
ON WHICH GOODS WERE LOADED ON BOARD THE CARRYING
VESSEL AND THE
NAME, ADDRESS AND TELEPHONE NUMBER OF CARRYING
VESSEL'S AGENT AT
THE PORT OF DESTINATION AND / OR UNITED ARAB
EMIRATES.
3. INSURANCE POLICY OR CERTIFICATE ISSUED IN THE
CURRENCY OF THIS
CREDIT TO THE ORDER OF UNITED ARAB BANK, UNITED
ARAB EMIRATES FOR
FULL CIF VALUE PLUS 10 PERCENT COVERING INSTITUTE
CARGO
CLAUSE(A), INSTITUTE STRIKE CLAUSE (CARGO),
INSTITUTE WAR CLAUSES
(CARGO), INSTITUTE CLASSIFICATION CLAUSE DTD 01/01/2001,
INSTITUTE RADIOACTIVE CONTAMINATION EXCLUSION
CLAUSE AND CARGO
ISM ENDORSEMENT DT. 01/07/2002 WITHOUT ANY
FRANCHISE OR EXCESS
CLAUSES. THE INSURANCE POLICY OR CERTIFICATE SHOULD
CERTIFY
CLAIMS PAYABLE IN UNITED ARAB EMIRATES AND GIVE
NAME AND ADDRESS
OF THE AGENT LOCATED IN UNITED ARAB EMIRATES WHO
WILL HONOUR
CLAIMS.
4. CERTIFICATE OF ORIGIN ISSUED IN ENGLISH ONE
ORIGINAL PLUS ONE
COPY STATING THAT THE GOODS ARE OF SINGAPOREN
ORIGIN GIVING NAME AND
ADDRESS OF MANUFACTURER, DULY CERTIFIED / ATTESTED
BY A CHAMBER
OF COMMERCE. ORIGINAL CERTIFICATE OF ORIGIN MUST BE
LEGALIZED BY
CONSULATE / OR LEGATION / OR EMBASSY OF THE UNITED
ARAB EMIRATES.
5. PACKING LIST IN ORIGINAL PLUS 3 COPIES.
6. CERTIFICATE ISSUED BY SHIPPING COMPANY / CARRIER
OR THEIR
AGENT CERTIFYING THAT:
(A) THE CARRYING VESSEL IS A REGULAR LINE VESSEL.
(B) THE AGE OF CARRYING VESSEL DOES NOT EXCEED 15
YEARS AT TIME
OF LOADING.
(C) THE VESSEL IS PERMITED TO ENTER INTO UAE PORTS
ACCORDING TO
MARITIME LAWS AND REGULATION.
(D) THE OWNERS OR OPERATORS OF THE CARRYING VESSEL,
HOLD THE ISM
CODE DOCUMENT OF COMPLIANCE, CURRENT AT THE TIME OF
LOADING OF
THE CARGO.
(E) GOODS ARE SHIPPED ON SEAWORTHY VESSELS, SUBJECT
TO INSTITUTE
CLASSIFICATION CLAUSE APPLICABLE AS ON 01.01.2001.
:47A:1. ALL DOCUMENTS SHOULD BE DATED ON OR AFTER
THE DATE OF THIS
DOCUMENTARY CREDIT AND MUST BE ISSUED IN ENGLISH
LANGUAGE.
2. THE NUMBER, THE DATE OF THIS CREDIT AND THE NAME
OF OUR BANK
MUST BE QUOTED ON ALL DOCUMENTS.
3. ALL INVOICES MUST INDICATE THE HARMONIZED SYSTEM
CODE FOR THE
ITEMS SUPPLIED.
4. A DISCREPANCY FEE EQUIVALENT TO USD 150.00 OR
EQUIVALENT WILL
This is a computer generated advice and does not
require a signature
BE DEDUCTED FROM THE PROCEEDS FOR EACH SET OF
DOCUMENTS PRESENTED
WITH DISCREPANCIES UNDER THIS DOCUMENTARY CREDIT,
IRRESPECTIVE OF
THE CONTENTS OF FIELD 71D.
5. IF DOCUMENTS ARE NEGOTIATED BY ANY BANK OTHER
THAN ADVISING
BANK, THE NEGOTIATING BANK MUST CONFIRM ON THEIR
COVERING
SCHEDULE THAT ALL CHARGES OF THE ADVISING BANKS
HAVE BEEN PAID.
6. IN ACCORDANCE WITH THE PROVISIONS OF ARTICLE 16
C III B OF UCP
600, IF WE GIVE NOTICE OF REFUSAL OF DOCUMENTS
PRESENTED UNDER
THIS CREDIT WE SHALL HOWEVER RETAIN THE RIGHT TO
ACCEPT A WAIVER
OF DISCREPANCIES FROM THE APPLICANT AND, SUBJECT TO
SUCH WAIVER
BEING ACCEPTABLE TO US, TO RELEASE DOCUMENTS
AGAINST THAT WAIVER
WITHOUT REFERANCE TO THE PRESENTER PROVIDED THAT NO
WRITTEN
INSTRUCTIONS TO THE CONTRARY HAVE BEEN RECEIVED BY
US FROM THE
PRESENTER BEFORE THE RELEASE OF THE DOCUMENTS. ANY
SUCH RELEASE
PRIOR TO RECIEPT OF CONTRARY INSTRUCTIONS SHALL NOT
CONSTITUTE A
FAILURE ON OUR PART TO HOLD THE DOCUMENTS AT THE
PRESENTER'S RISK
AND DISPOSAL, AND WE WILL HAVE NO LIABILITY TO THE
PRESENTER IN
RESPECT OF ANY SUCH RELEASE.
7. UNITED ARAB BANK WILL NOT ACCEPT OR HANDLE ANY
TRANSACTIONS
THAT ARE IN BREACH OF ANY APPLICABLE REGULATORY
SANCTIONS
8. NON LEGALIZED COMMERCIAL INVOICE AND CERTIFICATE
OF ORIGIN ARE
ACCEPTABLE FOR NEGOTIATION. WE WILL DEDUCT
LEGALIZATION FEES FROM
THE PROCEEDS AS PER BELOW LEGALIZATION TARIF
WITHOUT REFERRING TO
NEGOTIATING / PRESENTING BANK:
FROM USD 1 TO USD 2,722.00 FEE: USD 41.00
FROM USD 2,722.01 TO USD 8,169.00 FEE: USD 82.00
FROM USD 8,169.01 TO USD 16,338.00 FEE: USD 164.00
FROM USD 16,338.01 TO USD 24,506.00 FEE: USD 218.00
FROM USD 24,506.01 TO USD 40,844.00 FEE: USD 273.00
FROM USD 40,844.01 TO USD 68,073.00 FEE: USD 354.00
FROM USD 68,073.01 TO USD 136,147.00 FEE: USD
409.00
FROM USD 136,147.01 TO USD 272,294.00 FEE: USD
545.00
FROM USD 272,294.01 TO USD 544,588.00 FEE: USD
817.00
AMOUNT GREATER THAN USD 544,588.00 FEE: 0.20
PERCENT OF INVOICE
VALUE PLUS USD 28.00 FLAT FOR EACH CERTIFICATE OF
ORIGIN.
9. PLEASE BE INFORMED THAT OUR FOREIGN TRADE CENTER
(TRADE
FINANCE PROCESSING/OPERATIONS UNIT) IS AND SHALL BE
CONSIDERED AS
CLOSED (NON-BANKING DAY) ON SATURDAYS ALTHOUGH OUR
BANK/BRANCHES
MAY OTHERWISE BE OPEN FOR BUSINESS ON SATURDAYS.
10. BILLS OF LADING SHOWING CHARGES ADDITIONAL TO
THE FREIGHT
MENTIONED IN ARTICLE 26 (C ) OF THE UCP FOR
DOCUMENTARY CREDITS
2007 REVISION PUBLICATION NO. 600 ARE NOT
ACCEPTABLE EXCEPT WHERE
SUCH ADDITIONAL CHARGES ARE DEMURRAGE FEES FOR
CONTAINERS.
11. DOCUMENTS TO BE PRESENTED WITHIN 21 DAYS FROM
THE DATE OF
SHIPMENT BUT WITHIN THE VALIDITY OF THE CREDIT.
:71D:ALL CHARGES OUTSIDE USA, INCLUDING REIMBURSING
This is a computer generated advice and does not
require a signature
CHARGES ARE TO THE ACCOUNT OF THE
BENEFICIARY.
:48:21/DAYS AFTER THE DATE OF SHIPMENT
:49:WITHOUT
:78:UPON RECEIPT OF COMPLYING DOCUMENTS WE SHALL
REMIT THE PROCEEDS
AS PER YOUR INSTRUCTION ON MATURITY. PRESENTING
BANK TO DESPATCH
THE DOCUMENTS BY COURIER TO UNITED ARAB BANK, HEAD
OFFICE, 15TH
FLOOR TRADE FINANCE DEPARTMENT,
:57A:SBININBB659
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