Know how Letter of Credits works and the various types

Trading is considered to be the backbone of the global economy. Doing trading business is also very lucrative and profitable. Although it is a very profitable business, the trading business has its own risks. And one of the most common risks that trading businesses face is financial risk. People who buy from the trading firm could default financially before the payment could take place. In such cases, all the cost of the shipping would have to be borne by the trading firm which could lead the trading firm to financial ruin. Hence many trading firms rely on a letter of credit (LC). There are various types of letter of credit available in the markets.

A letter of credit is a financial bailout that is provided by various financial institutions. Some of the most popular types of letter of credit are:

• Commercial LC: It is the most popular type of LC.  The commercial LC is also known as import/export LC.
• Confirmed and Unconfirmed LC: When a third financial institution guarantees the payment, it is called Confirmed LC, and when there is no third financial institution involved and there is no LC confirmation, then it is called unconfirmed LC.
• Stand by LC: It is a very flexible type of LC where the collaboration opportunity between the buyer and the seller is greater.
• Transferable and Non-Transferable LC: The transferable LC lets the seller transfer the LC while the non-transferable LC does not.
• Red Clause LC: In this type of LC the seller can request an advanced payment of the LC before submitting the required documents.
• Payment at Sight LC: This LC offers immediate payment of the total amount after all the necessary documents have been submitted by the seller.
• Revocable and Irrevocable LC: When the LC can be canceled it is called revocable LC, and the opposite is called irrevocable LC.

Hence, people who are interested in the trading business can avail the benefit of a letter of credit for a more secure trading business. There are many trusted financial institutes that provide various types of letter of credit. 360tf.trade is one such financial institution that provides letter of credits to its clients.