There are two point of view in seeing types of L/C. First is based on its strength and secondly is based on its requirements.
Types of L/C based on its strength:
It is the weakest L/C which could be canceled and changed at any time by the opener or the issuing bank without any permission from the beneficiary or exporter
An L/C which could not be canceled within the validity time and the opening bank still guarantees to receive notes drawn on the L/C. There is still a possibility to cancel the L/C, but it requires approval from all the stakeholders involved.
- Irrevocable and Confirmed L/C
The most secure L/C for the beneficiary side. If all the requirements are fulfilled, the opening bank or the advising bank will guarantee all of the payment or money order.
Types of L/C based on its requirement:
An L/C which doesn’t require any additional documents to withdraw the money order, even taking money from the available credits can be done by handing over regular receipts.
- Documentary Letter of Credit
An L/C which require additional documents as mentioned on the L/C to withdraw the money.
- Documentary L/C with Red Clause
An L/C which let the beneficiary to withdraw half of the total payment with the regular receipts. Meanwhile the other half of the total payment should be withdrawn by additional documents
An L/C which provide available credits that could be used on each month without any adjustment of the requirements.
Another types:
In this L/C, the beneficiary is not the goods owner or exporter but they act as an intermediary. Thus, the beneficiary must ask for a help from their bank to issue an L/C for the goods owner or exporter which apparently guaranteeing the L/C they received from abroad.
The beneficiary could ask their paying bank to hand over the full or partial credit rights to the third parties.
A special guarantee which usually used as a “stand by” documents by the beneficiary or the bank on behalf of their customers. In this case, if the applicant fails to carry out a contract or fail to pay the loan, the bank will pay the beneficiary for the submission of a sight draft and send a statement from the beneficiary stating that the applicant or contractor fails to fulfill the contract and fulfill its obligations.
Source : Wikipedia