Types of letter of credit There are several types of letters of credit.

Revocable versus Irrevocable Revocable letters of credit offer issuer the amendment or cancellation right of the credit any time without prior notice to the recipient or beneficiary. As revocable letters of credit do not give any protection to the recipient, they are not used as often. On the other hand irrevocable letter of credit cannot be amended or cancelled without the agreement of the credit parties. Once an irrevocable letter of credit is open it cannot be changed without the written consent of all parties including the beneficiary. One should always insist and carefully check that a letter of credit is irrevocable. Confirmed versus Advised A letter of credit guaranteed by two banks. i.e. A bank agrees to honor the letter of credit and make the required payment in case both the letter's holder and the original, issuing bank both fail to make payment. This reduces the risk of the letter of credit to an absolute minimum. On the other hand, Advised letter of credit does not guarantee the creditworthiness of the Opening Bank. Confirmed is preferred, as the Confirming Bank promises to pay.

Straight versus Negotiation A straight letter of credit can only be paid in the country of the Paying Bank and the negotiation letter of credit can b paid to any bank.

Sight versus Usance At Sight means the beneficiary is paid as soon as the Paying Bank has determined that all necessary documents are in order. And Usance letter of credit is first presented then accepted and after that it is paid. These bills usually for a period of 30 to 180 days after the bill of lading date. Usance is a form of delayed payment so it should be avoided.

 Revolving Letter of Credit: Revolving Letter of Credit is used when the delivery of goods is in form of partial/ multiple shipments. It keeps on revolving and is not constrained to a single transaction. Revolving Letter of Credit (LC) can be utilized for subsequent business transactions over a period of time on a continuous basis to the extent of limit authorized. Red Clause verses Green Clause Letter of credit In the case of a red clause credit (letter of credit with advance payment), the seller can request an advance for an agreed amount (as per terms and conditions of the letter of credit) from the correspondent bank. This advance is mainly to finance the manufacture or purchase of the goods to be delivered under the letter of credit. Unlike the red clause letter of credit, in the case of a green clause letter of credit, the advance is normally paid not only against receipt and a written undertaking from the seller to subsequently deliver the transportation documents before the credit expires, but also against receipt of an additional document providing proof that the goods to be shipped have been warehoused.