1. Irrevocable letter of credit. The irrevocable letter of credit cannot be modified or canceled without the consent of the parties. This fundamental commitment allows the exporter to prepare the merchandise or arrange it for shipment with the assurance that it will receive payment if it presents the required documents. The only way to cancel or modify them is when all the parties involved in the operation express their consent to this effect. In the event that a letter of credit does not indicate whether it is revocable or irrevocable, it will be considered irrevocable.
2. Confirmed letter of credit. The confirmed letter of credit provides the exporter with absolute security of payment, the confirmation of an irrevocable credit by another bank (confirming bank) through authorization at the request of the issuing bank, constitutes a firm commitment by the confirming bank , in addition to that of the issuing bank, provided that the required documents have been presented to the confirmed bank or to any other designated bank in accordance with the terms and conditions of the credit. Generally this allows the exporter to ensure that he will receive payment from a local bank.
3. Unconfirmed letter of credit. The unconfirmed letter of credit determines that the buyer’s bank must review the documents and proceed with payment, with the exporter’s bank acting only as a notifier. That is to say, this modality exempts banks other than the issuer from any payment commitment to the beneficiary, since they only limit themselves to notifying the beneficiary of the terms and conditions of the operation, the only bank that undertakes to pay is the issuer , but as generally noted this is in another country. The great drawback of this type of letter of credit is that the exporter does not have the absolute and unconditional obligation of the notifying bank.
4. Letter of credit at sight or term. The letter of credit may provide for payment at sight (immediate) or payment at a future date (credit by installment letter).
5. Letter of credit with red clause. The letter of credit with a red clause allows the exporter to obtain advance payments at the buyer’s risk and expense. The bank will pay a percentage of the total amount of the credit.
6. Letter of credit with green clause. It has the same scope of the red clause, except that under the letter of credit issued with the green clause, the advance payment is made against presentation of a certificate of deposit or warrant, which ensures that the merchandise (total or partial) is available to the importer. (buyer). This clause has a lower risk for the importer.
7. Transferable letter of credit. The transferable letter of credit is one that entitles the beneficiary to transfer the funds in whole or in part to other beneficiaries. Normally the beneficiary of the credit is the seller of the goods, however, by agreement between the parties, the credit may be in favor of a third party. This modality is used given the needs of international commercial traffic, the presence of intermediaries that serve as a bridge between the buyer and the seller (broker) and the financing needs of companies.
8. Stand by letter of credit. This type of letter of credit is used to guarantee payment to a creditor, if the debtor fails to comply with his contractual obligations, the only requirement for the beneficiary to be able to collect it is that he normally verify with a document certified by a third party that his debtor did not pay him. in your opportunity.