A letter of credit (LC) is a financial instrument (document), issued by one bank and payable by another, which guarantees the seller of goods payment if certain terms and conditions are met. LCs are commonly used to facilitate international trade. Standard terms and procedures have been developed by the International Chamber of Commerce (ICC) known as Uniform Customs and Practice for Documentary Credits (UCP).
There are various types of LC, including
- Revocable / Irrevocable
- Confirmed / Unconfirmed
- Transferable / Untransferable or Non-transferable
- Straight / Negotiable
- standby
- revolving
- back-to-back
For more information, see:
- HMRC, Letters of credit for importers and exporters
- ICC Academy: Types of Documentary Credit – a Comprehensive Guide (2019)
- Trade Finance Global: What are the different types of Letter of Credit?