In answer to your question “How many types of LC do we have?” – there are numerous types, categorized based on their terms, usage, and risk profile.

Main Classifications of Letters of Credit (LCs):

1. Based on Revocability:

• Revocable Letter of Credit: The issuing bank or the applicant (buyer) can amend or cancel the credit at any moment without prior notice to the beneficiary (seller). This type is rarely used due to the high risk for the seller.
• Irrevocable Letter of Credit: This is the most common type. It cannot be modified or cancelled without the agreement of all parties involved (buyer, seller, and banks). It provides a high level of security for the seller.

2. Based on Confirmation by Another Bank:

• Confirmed Letter of Credit: In addition to the issuing bank (in the buyer’s country), a second bank (usually in the seller’s country) adds its “confirmation” and obligation to pay. This eliminates the seller’s risk of political instability or non-payment by the foreign bank.
• Unconfirmed Letter of Credit: Only the issuing bank in the buyer’s country is obligated to pay.

3. Based on Payment Terms:

• Sight Letter of Credit: Payment is made to the beneficiary immediately upon presentation of complying documents.
• Usance (or Deferred Payment) Letter of Credit: Payment is made at a specified future date (e.g., 30, 60, or 90 days after presentation of documents or the bill of lading date). This effectively means the seller is giving credit to the buyer.

4. Based on Transferability:

• Transferable Letter of Credit: The original beneficiary (the middleman or trader) can transfer all or part of the credit to one or more second beneficiaries (their suppliers). This is common for trading companies.
• Non-Transferable Letter of Credit: Only the named beneficiary can receive payment.

5. Other Specific and Common Types:

• Back-to-Back Letter of Credit: This involves two separate LCs. The seller uses the LC they received from their buyer as collateral to open a new, second LC in favor of their own supplier. This is a complex and higher-risk arrangement.
• Revolving Letter of Credit: Used for regular, ongoing transactions between two parties. The credit amount is automatically reinstated for a specific period and up to a certain limit after each use.
• Standby Letter of Credit (SBLC): Functions more like a performance guarantee or a backup. It is only payable if the applicant fails to fulfill their contractual or payment obligations to the beneficiary.
• Red Clause Letter of Credit: Contains a special clause (historically written in red ink) that allows the beneficiary to receive an advance payment before shipping the goods, typically to finance production or purchase of materials. This carries significant risk for the buyer.

Summary

In short, there is no single fixed number for the types of LCs. They are defined by combining the features above (e.g., an LC can be “Irrevocable, Confirmed, and at Sight”) based on the specific needs of the transaction and the parties’ risk management.

However, the Irrevocable Letter of Credit is the most prevalent standard in international trade. If you are considering using an LC, it is essential to consult with your international banking or trade finance expert to select the most suitable and secure type for your transaction.