Types of Letters of Credit What are they used for? The purpose of a letter of credit

1.Types of Letters of Credit.

1) Whether the bill of exchange under the letter of credit is accompanied by shipping documents is divided into: documentary credit, light bill of credit.

2) Based on the responsibility of the issuing bank, it can be divided into: irrevocable letter of credit and revocable letter of credit.

3) With or without another bank to guarantee the payment, it can be divided into: confirmed L/C, non-confirmed L/C.

4) According to the different payment time, it can be divided into: L/C at sight, L/C usance, and fake usance L/C.

6) Revolving letter of credit, divided into: automatic circulation, non-automatic circulation.

7) Split letter of credit.

8) Reverse letter of credit. It is also known as reopening a letter of credit.

9) Advance letter of credit.

10) Standby letter of credit.

2.The purpose of a letter of credit

A letter of credit is a document used by a bank to guarantee the buyer's or importer's ability to pay.

In international ** activities, the buyer and the seller may not trust each other, and the buyer is worried that the seller will not deliver the goods according to the contract requirements after the advance payment; The seller is also concerned that the buyer will not pay after shipping the goods or submitting the shipping documents. Therefore, it is necessary for two banks to act as guarantors for both buyers and sellers, collect and submit documents on behalf of them, and replace commercial credit with bank credit. The instrument used by banks in this activity is the letter of credit.

It can be seen that the letter of credit is a certificate for the bank to conditionally guarantee payment, and it has become a common settlement method in international activities. According to the general provisions of this settlement method, the buyer first deposits the payment with the bank, and the bank opens a letter of credit, notifies the seller's bank to open an account in another place and tells the seller, and the seller delivers the goods according to the terms stipulated in the contract and the letter of credit, and the bank pays on behalf of the buyer. 

3.What are the qualifications?

If the enterprise has opened a corporate account in the bank and has operated the business for a period of time (the specific length of time, depending on each bank, the general bank needs to see whether the company's transaction record in the bank is good), if the company's account is well operated and 100% of the margin is deposited in the company's account, the bank can open a letter of credit of the same amount.

4.What are the special rules for letters of credit in various countries?

Due to the particularity of the letter of credit, it has three characteristics: first, the letter of credit is not attached to the sales contract, and the bank emphasizes the written form of certification that separates the letter of credit from the basic ** when reviewing the documents. Second, the letter of credit is a voucher payment, not subject to the goods.

As long as the documents match, the issuing bank shall make the payment unconditionally. Third, the letter of credit is a kind of bank credit, which is a kind of guarantee document of the bank. In this way, banks in various countries operate according to only these characteristics.

I didn't come across any special rules.

Essentially, a letter of credit is a means of payment and is used for settlement.

Both parties are at ease when doing **.

It is a means of payment based on an import and export contract, but independent of the contract. It is a tool to balance the mutual distrust between the two parties to the contract, which is equivalent to the issuing bank playing a role of connection and guarantee, as long as the seller submits some documents stipulated in the letter of credit to prove that the seller has shipped the goods according to the requirements, the bank must promise to pay (the buyer does not have to pay first, and the seller is not too worried about not receiving the payment after sending the goods).

To put it more colloquially, it is a bit similar to the Alipay guaranteed transaction of ** network, the nature is almost the same, but the rules of letter of credit operation are relatively strict.

L/C can be divided into five types according to the way of redemption: by payment (payment at sight); by acceptance; by negotiation.

by def payment; by Mixed Payment"One of the rarer ones"）。

by negotiation. By acceptance is a bill of exchange, which has the advantage of being subject to the law of instruments of the country in addition to the conventions of the letter of credit.

Protection. by payment; by def payment; There is no need for a bill of exchange, and European countries mostly use it, because some countries have to levy stamp duty if there is a bill of exchange.

Of course, these letters of credit are effective, and there are differences in payment obligations, but the main difference between bills of exchange is the above.

To see whether you want a bill of exchange, you generally look at the type of letter of credit OK, of course, there are special clauses in the letter of credit to indicate whether to draft or not, that is;

42adrawee (bill of exchange payer);

42cdrafts at。。。the date of payment of the bill of exchange);

With the above clause, it is necessary to pay for a bill of exchange.