Letter of Credit types.


Letters of Credit are a payment method, generally issued by a bank, in goods or merchandise trades. International trade transactions usually apply the Letter of Credit regulation.

The rights and obligations are not derived from the underlying contract but the established documents.

The importer is ensured the freight will be delivered according to the agreed terms, and the exporter is ensured to be paid.



It can be modified or cancelled by the issuing bank at any moment and without prior notice to the beneficiary. Provides low security, as once production has started changes or cancellations may surprise the provider.


The issuing bank engages irrevocably to pay the beneficiary the agreed among the credit conditions, as long as all conditions in it have been met. This can only be modified or cancelled by the applicant with the approval of the issuing bank, the confirming bank and the beneficiary.


The credit is automatically renewed with its usage (in the same terms and conditions) as many times as the credit specifies. It is used when the buyer is an exporter’s regular client. It can be cumulative if the unused amount is pushed to the following period. Otherwise it will not be cumulative and the unused quantities will be cancelled.


Allows the exporter to benefit a total or partial credit advance. It can be a Red Clause Credit or a Green Clause Credit.

Back to back

When the credit’s beneficiary is not the product’s final supplier, and such credit is not transferrable, the exporter can request its bank to issue a new credit, subordinated to the first one. It’s two independent credits: one of them is transferrable and the second one is in favor of the final supplier, who supplies the export merchandise.

Stand by

It is used as replacement guarantee. It can be used in all kinds of transactions and is based in the concept of non-performance of the contract by the applicant part. The beneficiary can have the full credit amount if contractual obligations are not fulfilled by the applicant.



A natural or legal person who applies for an opening of credit, setting the utilization conditions. He commits to payments derived of the credits utilization, as long as the agreed conditions are met.

Issuing bank

A bank chosen by the buyer that proceeds to the opening of a credit. The credit’s conditions communication to the notifying bank materializes it.

Advising bank

The issuing bank’s correspondent bank at the exporting country. It simply informs the beneficiary about the opening of a credit and its conditions, with no further commitment.


Natural or legal person to whom the credit will be emitted for, and who is entitled to the payment from the issuing bank or the confirmation bank once the stipulated credit conditions have been met.

Confirming bank

A bank, other than the issuing bank, confirming the letter of credit emitted for the beneficiary. When the issuing bank includes in the credit’s conditions the request or authorization to confirm the credit –which it is not obliged to, the advising bank becomes a confirming bank by informing the beneficiary and assuming the same commitments as the issuing bank.

Nominated bank

Generally located at the selling country, the nominated bank receives the order from the issuing bank to pay or commit to pay as stipulated under the credit’s conditions.