What Is Unconfirmed Letter Of Credit, Documentary Letter Of Credit And Clean Letter Of Credit?


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Nouman Umar answered
Under the unconfirmed letter of credit the bank through whom the credit is negotiated does not give any guarantee to the exporter that the bills drawn will be honored by the issuing bank. The unconfirmed letter of credit is a commitment of the issuing bank to honor the drafts. From the exporter's point of view the confirmed irrevocable letter of credit is the best form of receiving payment.

Documentary letter of credit: a documentary letter of credit is one which provides for bills to be accompanied by documents of title of goods such as the bill of lading, invoice and the policy of insurance.

Clean letter of credit: If there are no conditions attached to the bill and the issuing banks make payment up to the limit of the credit, the letter is called clean letter of credit.

Fixed credit: a fixed letter of credit is that which is available for a fixed total amount payable in one or more than one draft. In other words the letter of credit remains effective until the specified amount is drawn within the specified period.

Revolving letter of credit: The credits of specified amounts which are automatically renewed upon the fulfillment of credit conditions are known as revolving credit. Here when the bill drawn is paid the credit is automatically available for the full amount.

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