Based on whether the bill of exchange under the letter of credit is accompanied by shipping documents, letters of credit can be divided into documentary letters of credit and clean letters of credit.
(1) Documentary Letter of Credit (Documentary L/C).
A documentary letter of credit is a letter of credit in which the issuing bank pays against a bill of exchange or only against documents. Documents refer to documents that represent the goods or prove that the goods have been delivered. The former refers to bills of lading, and the latter refers to railway waybills, air waybills, parcel receipts, etc. Most letters of credit used in cross-border international trade are documentary letters of credit.
(2) Clean Letter of Credit (Clean L/C).
A clean letter of credit is a letter of credit in which the issuing bank pays against a bill of exchange without any documents attached. Some letters of credit require that the bill of exchange be accompanied by non-shipping documents, such as invoices, advance payment lists, etc., which are also clean letters of credit. When using letters of credit to prepay for goods, clean letters of credit are usually used.