1. Back-to-back L/C
Back-to-back L/C is also called a re-opened L/C. It means that the beneficiary requires the notifying bank or other bank of the original L/C to open a new L/C with similar contents based on the original L/C. The issuing bank of the back-to-back L/C can only open it based on an irrevocable L/C. Back-to-back L/C is usually opened when a middleman resells other people’s goods, or when two countries cannot directly handle import and export trade, they use a third party to conduct transactions. The amount (unit price) of the original L/C should be higher than the amount (unit price) of the back-to-back L/C, and the shipment period of the back-to-back L/C should be earlier than the provisions of the original L/C.
2. Anticipatory L/C/Packaging L/C
Anticipatory L/C/Packaging L/C means that the issuing bank authorizes the paying bank (notifying bank) to prepay all or part of the L/C amount to the beneficiary, and the issuing bank guarantees repayment and bears the interest, that is, the issuing bank pays first and the beneficiary submits the documents later, which is the opposite of the usance L/C. The advance letter of credit is paid by the exporter’s clean bill, and the beneficiary is also required to attach an instruction manual for supplementing the documents specified in the letter of credit. When the shipping documents are delivered, the paying bank will deduct the interest on the advance payment when paying the remaining payment.
3. Standby letter of credit
Standby letter of credit, also known as commercial paper credit or guaranteed letter of credit, refers to a certificate issued by the issuing bank to the beneficiary at the request of the applicant to promise to assume a certain obligation, that is, the issuing bank guarantees that when the applicant fails to perform its obligations, the beneficiary can obtain reimbursement from the issuing bank by submitting the provisions of the standby letter of credit and the certificate of breach of contract of the issuer. It is a bank credit, and for the beneficiary, it is a way to obtain compensation in case of breach of contract by the issuer.