The standard is whether the bill of exchange under the letter of credit is accompanied by a shipping document
1) Documentary credit
A documentary credit is a letter of credit that pays by documentary bill of exchange or only by documents. The documents here refer to documents representing the ownership of the goods (such as ocean bills of lading, etc.), or documents proving that the goods have been delivered (such as railway waybills, air waybills, and parcel receipts).
2) Clean credit
A clean credit is a letter of credit that pays by a clean draft without a shipping document attached. When a bank pays by a clean credit, it may also require the beneficiary to submit some non-shipping documents, such as invoices, advance payment lists, etc.
In the settlement of international trade payments, most of them are documentary credits.
2. Based on the responsibility of the issuing bank
1) Irrevocable L/C
Once the L/C is issued, the issuing bank cannot unilaterally modify or revoke it without the consent of the beneficiary and the relevant parties during the validity period. As long as the documents provided by the beneficiary meet the provisions of the L/C, the issuing bank must fulfill its payment obligations.
2) Revocable L/C
Revocable L/C
Revocable L/C refers to a L/C that the issuing bank has the right to revoke at any time without obtaining the consent of the beneficiary or the relevant parties. The word “revocable” should be indicated on the L/C. However, UCP500 (International Chamber of Commerce Publication No. 500 of Uniform Customs and Practice for Documentary Credits) stipulates that as long as the beneficiary has obtained a guarantee of negotiation, acceptance or deferred payment in accordance with the terms of the L/C, the L/C cannot be revoked or modified. In addition, it also stipulates that if the L/C does not indicate whether it is revocable, it should be deemed as an irrevocable L/C. The latest “UCP600” stipulates that banks cannot issue revocable letters of credit (Note: irrevocable letters of credit are commonly used now).