Types of Documentary Credit

It is Stated before that the letter of Credit is an undertaking by the importer's Bank that if the exporter exports the goods and produces documents as stipulated in the Credit, the bank would make payment to the exporter.

It is undeniable that a letter of credit offers advantages both to the exporter and the importer. the advantages accruing to either of the parties differ depending upon the nature of the Credit opened. However , those who deal in international trade and transactions should be well acquainted with the different types of Letter of Credit.

A Letter of Credit may be Clean Credit or Documentary Credit. A Documentary Credit requires the documents of little to goods and other documents to accompany the bill drawn under the Credit. But in case of Clean Letter of Credit no such documents are necessary.

Under a Clean Letter of Credit, the documents of little to goods, for instance, bill of lading, are sent by the exporter to the importer directly. Only the bill exchange drawn on the importer is offered to the bank for purchase. neither the exporter nor the bank retains control over the goods covered by the transaction. For the bank it remains an in secured advance. For this reason, Clean Letter of Credit is normally not found in commercial transaction.

All Most all commercial Letters of Credit are Documentary Credits. Documentary Credits may be classified under the following types depending upon the particular provisions contains:

1. Payment, Acceptance and Negotiation Credits.

2. Revocable and Irrevocavle Credits.

3. Confirmed and Unconfirmed Credits.

4. With Recourse and without recourse Credits.

5. Fixed and Revolving Credits.

6. Transferable Credits.

7. Back to Back Credits.

8. Red Clause and Green Clause Credits.

9. Standby Credits.

10. Anticipatory Credit.