Types of letters of credit (UCP 600): sight, usance, confirmed, transferable

How a credit can be paid (Article 6(b))

• Sight payment: the bank pays when it receives complying documents.
• Deferred payment: the bank undertakes to pay at a later date, for example 90 days after shipment, without a bill of exchange.
• Acceptance: the bank accepts a bill of exchange (draft) drawn by the beneficiary and pays it at maturity.
• Negotiation: a nominated bank purchases the drafts or documents, advancing funds to the beneficiary before the issuing bank reimburses it.

Confirmed credits

A confirmation is a second, independent undertaking added by another bank, usually in the beneficiary's country. Under Article 8 the confirming bank is irrevocably bound to honour or negotiate as soon as it adds its confirmation, provided complying documents are presented to it or to another nominated bank. Exporters ask for confirmation when they are unsure of the issuing bank or of the country risk.

Transferable credits

A trading company that buys from a supplier and sells to the final buyer can ask for a transferable credit. Under Article 38 only a credit that specifically states it is "transferable" can be made available, in whole or in part, to a second beneficiary at the first beneficiary's request, and the transferring bank need only do so to the extent and in the manner it expressly agrees. A transferred credit cannot be transferred again at the request of the second beneficiary. Standby letters of credit, which act as guarantees, are covered in a separate note.