What are notable types of letters of credit that are available?
• Revocable vs. Irrevocable: You would want the L/C to be “irrevocable” by the buyer without prior notice or consent. • Confirmed: In high risk markets, you may wish to pay a Confirmation fee in return for the bank adding its own commitment to pay. • Transferable: You may wish to transfer the performance obligation to another party. • Back-to-Back: If you are acting as an intermediary, you may wish independent L/Cs to cover the different stages of the transaction. • Assignment of proceeds: This allows you to assign the proceeds to a supplier, though you retain the performance obligation and right to payment. • Revolving letter of credit: When you are supplying repeated shipments of the same goods over a specified period of time, you may wish a revolving irrevocable L/C. Note that such an L/C may be issued as “cumulative” (funds not drawn in a particular period carry over to the next period) or “non-cumulative” (funds not drawn in a particular period are no longer available).
