There are different kinds of letters of credit depending on the restrictions that they have:

Revocable: A revocable letter of credit allows alterations, modifications and cancellations at any time without the consent of the exporter or beneficiary of the terms explained in the letter of credit. Because of the risk to the exporter, are not normally accepted.

The one that is most commonly used is the irrevocable letter of credit. Different from the one we mentioned before, this one does need the approval of exporter, importer and banks in order to be modified or cancelled. This letter of credit is particularly preferred by exporters because it leaves them with no surprise at the time of payment when the merchandise arrives at the port of entry. Irrevocable letters cannot be modified by one person only.

Transferable letters of credit need to be also irrevocable. Through these types of documents, the exporter transfers the right to the merchandise and the payment of the goods. They are often used when the exporter and the importer work together or are part of the same company, or in the case of intermediaries.

When a transferable letter of credit is used, the exporter uses the credit granted by the issuing bank and avoids borrowing or using its own funds to purchase goods from the vendor. Hence, it is a viable tool for pre-export financing.

For a letter of credit to be transferred, the transfer needs to be indicated in the terms of the letter of credit. Before the transfer, the exporter must contact in writing with the bank for the disbursement of funds. The bank that makes the transfer, whether or not letter of credit has been confirmed, is required to make the transfer only to a point and how it is specifically expressed in the letter of credit.

Transferable letters of credit have their risks. One of them is the fact that when the bank receives these letters, it does not have enough information about the supplier.

The only source of confirmation they have is the evaluations of the importer on the reputation of the exporter and its way of working. So that risks are reduced and merchandise of low quality is send, a document that certifies and independent inspection will be required.

In order to simplify this procedure, many banks prefer to deal with single transfers instead of multiple ones. However, multiples transfers are performed when the conditions are appropriate. Partial transfers may be performed for one or more suppliers when the terms of the letter of credit allow it.