Letter of Credit Types: Which One to Ask Your Bank For

Your bank comes back with a list. Sight or usance. Confirmed or unconfirmed. Transferable, back-to-back, revolving, standby. It reads like a menu, and the relationship manager wants an answer by Thursday because the supplier is holding production.

Almost every guide that ranks for this question will hand you the same alphabetical list of definitions and leave you exactly where you started. Some of them will still tell you to insist on an irrevocable credit, which under the current rulebook is like insisting your contract be written in words. What none of them tell you is the thing that actually decides this: the type you pick changes how the credit is priced, not just what it is called — and one of the choices switches your bank from charging you once to charging you every month.

This page is about the forks, and only the forks. If you need the mechanism — who the parties are, how documents get examined, why a market booth usually cannot be a beneficiary — that lives in our guide to how an L/C works and when it fails. If you need the fee lines themselves, they are broken out in what importers actually pay in L/C charges. Here we only touch a fee where the fee changes with the type.

In this guide

• The type your bank quotes is really three separate decisions
• Revocable versus irrevocable is a dead choice, and most guides still list it
• Sight, deferred, acceptance, negotiation: when the money actually leaves
• Confirmed or unconfirmed: buying a second bank’s promise
• Transferable and back-to-back: the two ways to pay several suppliers
• Revolving credits and other reuse structures the rulebook does not cover
• Standby credits are a different instrument wearing the same name
• How to check the type you were actually given
• Choosing, in one line each
• Frequently asked questions

The type your bank quotes is really three separate decisions

The reason the standard list is so hard to use is that it flattens three unrelated questions into one column. “Sight”, “confirmed” and “transferable” are not alternatives to each other. They are answers to different questions, and a single credit answers all three at once. Your credit is going to be a sight и unconfirmed и transferable credit, or some other combination — not one of nine boxes.

Ask them in this order instead.

When does the money leave? This one is not optional. UCP 600 Article 6(b) says a credit “must state whether it is available by sight payment, deferred payment, acceptance or negotiation”. Every credit ever issued under these rules picks one. This is the cash-flow decision, and it is the only axis where the supplier is effectively lending you money.

Whose promise stands behind it? By default, the issuing bank’s — yours. Add a confirming bank and the seller gets a second, separate undertaking from a bank closer to home. This is the risk-allocation decision, and it is usually the supplier, not you, who raises it.

Can it be split, passed on, or reused? Transferable, back-to-back and revolving all live here. This is the structural decision, and it is the one that goes wrong most expensively for anyone buying from more than one supplier.

The useful thing about that reframe is that it maps onto fields in the actual message. When a credit is issued, it travels as a SWIFT MT700, and the type is not prose — it is encoded in named fields you can read off the advice your bank sends you. We come back to those fields at the end, because being able to check what you were given is worth more than being able to recite what you asked for.

Revocable versus irrevocable is a dead choice, and most guides still list it

Start here because it clears out a third of the noise. Search this topic and you will be told that a revocable credit can be amended or cancelled by the buyer without notice, and that you should therefore always insist on an irrevocable one. That advice was correct under UCP 500. It has been wrong since 2007.

UCP 600 Article 2 defines the instrument itself this way: “Credit means any arrangement, however named or described, that is irrevocable and thereby constitutes a definite undertaking [of] the issuing bank to honour a complying presentation.” Irrevocability is not a feature you select. It is inside the definition of the word. Article 3 then closes the gap for a credit that simply forgets to say so: “A credit is irrevocable even if there is no indication to that effect.”

You can check how complete that removal is without taking anyone’s word for it. Search the full text of ICC Publication No. 600 — all 39 articles — for the string “revocable”. It appears three times, and all three are inside the word “irrevocable”: the Article 2 definition, the Article 3 interpretation, and Article 10(b) on amendments. There is no revocable-credit provision to invoke.

The banking network agrees. The SWIFT MT700 message that carries a documentary credit has a mandatory Field 40A, “Form of Documentary Credit”, and it must contain one of exactly four codes:

Сайт SWIFT MT 700 standards guide states the position plainly in a note under that field: “All codes that previously related to REVOCABLE documentary credits have been removed.” So the type cannot be expressed in the message even if a bank wanted to issue one.

Two practical consequences follow, and neither is academic. First, stop spending negotiating capital on the word “irrevocable” — you already have it, and a supplier who demands it in the contract is telling you he learned this from an old textbook too. Second, and much more usefully: if a counterparty ever offers you something described as a revocable letter of credit, that is a warning about the counterparty. Either the instrument is not subject to UCP 600 at all, in which case you need to know what it is subject to, or the person offering it does not know what they are selling. Both are worth finding out before goods move.

What has replaced revocability as the real risk is amendment. Article 10(a) says a credit “can neither be amended nor cancelled without the agreement of the issuing bank, the confirming bank, if any, and the beneficiary”. That protects you from unilateral cancellation — and it also means that once the credit is out, fixing a type you chose badly requires everyone to agree. The type decision is sticky by design.

Sight, deferred, acceptance, negotiation: when the money actually leaves

This is the fork most importers actually care about, because it is the one that touches working capital. Article 6(b) makes it compulsory, and Article 2 gives each option a distinct legal meaning by defining what “honour” means in each case.

• Sight payment. Honour means “to pay at sight if the credit is available by sight payment”. Documents comply, the bank pays — for an importer, cash usually leaves before the container does.
• Deferred payment. Honour means “to incur a deferred payment undertaking and pay at maturity”. The bank commits now, pays later, and no draft is involved.
• Acceptance. Honour means “to accept a bill of exchange (‘draft’) drawn by the beneficiary and pay at maturity”. Economically close to deferred payment, but the seller ends up holding a negotiable instrument he can discount — which is why some suppliers ask for acceptance by name.
• Negotiation. The odd one out. It is the purchase by a nominated bank of drafts or documents under a complying presentation, advancing funds before that bank is itself reimbursed. It describes who fronts the money to the seller, not when you pay.

Note that “usance” is not a type in the rules at all. It is trade shorthand for the deferred-payment and acceptance branches — a credit with time on it. If a term sheet says “usance L/C at 90 days”, the credit will still be issued as available by deferred payment or by acceptance, and which one it names changes what the seller can do with it.

Now the part that does not appear on page one anywhere. Choosing time costs money on a schedule, and that schedule is published. On the DBS Bank (Hong Kong) Trade Finance Service Fee Schedule effective January 01, 2026, the usance acceptance and deferred payment commission on an import credit is 1/16% per month, minimum HK$350. That sits on top of the issuance commission, and it accrues with the tenor.

A 180-day usance credit therefore carries roughly six of those monthly increments where a sight credit carries none. That is one bank’s published tariff rather than a market rate, and your Chinese issuing bank will have its own — but the shape is near-universal: sight is priced as an event, time is priced as a duration.

One trap worth naming because it is cheap to avoid. Article 6(c) says a credit “must not be issued available by a draft drawn on the applicant” — that is, on you. If a draft is drawn on the buyer rather than a bank, the seller is holding your paper, not a bank’s, and the whole point of the credit has quietly evaporated. A credit drafted that way is defective under the rules. Read Field 42C and 42A on the advice and check who the drawee is.

Confirmed or unconfirmed: buying a second bank’s promise

Confirmation is widely explained as “an extra guarantee”, which undersells what is actually happening. Article 2 is precise: “Confirmation means a definite undertaking of the confirming bank, in addition to that of the issuing bank, to honour or negotiate a complying presentation.” It is not a countersignature on your bank’s promise. It is a second, independent promise from a different bank, and the seller can go to that bank directly.

Article 2 also defines who can do it: “Confirming bank means the bank that adds its confirmation to a credit upon the issuing bank’s authorization or request.” You cannot simply go and buy confirmation on the side without your issuing bank being in the loop — the authorisation runs through it.

When the request is reasonable. A supplier asks for confirmation when he is worried about something he cannot control: your bank being unknown to him, or your country’s ability to transfer currency out. If your issuing bank is a small regional institution with no correspondent relationships he recognises, that worry is legitimate and confirmation is the cheapest way to make it go away.

When it is not. If your credit is issued by a bank the seller’s own bank deals with daily, confirmation is reassurance nobody needed and someone is paying for. Ask the supplier directly which risk he is pricing — issuing-bank risk or country risk. If he cannot answer, the request is habit rather than analysis.

Here is the honest part, and it is the reason this section exists. Nobody can tell you in advance what confirmation costs, and you should distrust any page that gives you a percentage. Look at what a published bank tariff actually does with this line. On the same DBS schedule that prices every other service to the exact Hong Kong dollar — advising a credit HK$400, transferring one fully HK$450, amending one HK$500 — the entry for “Confirmation of DC” reads: Subject to the Bank’s Quotation. The standby confirmation line says the same thing. Those are the only two lines in the section that refuse to quote.

That is not the bank being evasive. Confirmation is priced as country and counterparty risk on the day, for that issuing bank, in that currency, for that tenor. A confirmation on a credit from a top-tier bank in a stable currency and one on a credit from a bank in a country under transfer restrictions are not the same product, and no published schedule can average them. The number you will be quoted for your credit is a real number; the “typical range” you read on a content-marketing page is not.

One structural point that changes who you can complain to. Some sellers arrange silent confirmation — a bank confirms the credit at the seller’s request, without the issuing bank’s authorisation. Because Article 2 defines a confirming bank as one acting on the issuing bank’s authorisation or request, a silently confirming bank is not a confirming bank under UCP 600. It is a separate contract between the seller and that bank. It does not bind your bank, it does not appear on your credit, and if it fails it fails outside the rules you are both relying on.

Transferable and back-to-back: the two ways to pay several suppliers

This is the section to read slowly if you buy from more than one supplier, which in Yiwu you almost certainly do. It is also the fork where more importers commit to a structure that cannot work than any other, because the word “transferable” sounds like it does something it does not.

A transferable credit is governed by Article 38, the longest article in UCP 600. Five of its sub-articles decide whether the structure will work for you:

• The bank can just say no (38(a)). “A bank [is] under no obligation to transfer a credit except to the extent and in the manner expressly consented to by that bank.” Transferability is permission, not entitlement.
• One hop only (38(d)). “A transferred credit cannot be transferred at the request of a second beneficiary to any subsequent beneficiary.” That kills the chain people imagine — buyer to agent to trading company to factory. If your supply chain has two intermediaries in it, a transferable credit does not reach the end.
• Splitting requires partial shipments (38(d)). A credit may go to several second beneficiaries only “provided partial drawings or shipments are allowed”. Field 43P must read Allowed, or the multi-supplier plan is dead regardless of what Field 40A says.
• The seller side pays (38(c)). “Unless otherwise agreed at the time of transfer, all charges … must be paid by the first beneficiary.” When a trading company asks you to make the credit transferable, the default already puts that cost on him.
• Exactly five terms can shrink (38(g)). Amount, unit price, expiry date, presentation period, latest shipment date — “any or all of which may be reduced or curtailed”, and the insurance percentage may be increased. The list is closed: currency, port of loading and goods description cannot change.

The costs are real. On the DBS schedule a full transfer without substitution is HK$450, but a partial transfer runs 1/4% of the transfer amount with a HK$800 minimum, and amending a transferred credit is another HK$500.

Then there is the mechanism that makes the structure work commercially, and the trap inside it. Article 38(h) gives the first beneficiary the right “to substitute its own invoice and draft, if any, for those of a second beneficiary”, and to draw the difference. That is how an intermediary keeps its margin invisible: the factory invoices at its price, the trading company swaps in its own invoice at yours, and you never see the spread.

Article 38(i) is what happens when that slips. If the first beneficiary “fails to do so on first demand”, the transferring bank “has the right to present the documents as received from the second beneficiary to the issuing bank” — the intermediary misses a deadline and its supplier’s original invoice, real price on it, lands on your desk.

Back-to-back is a different animal. A transferable credit is one credit moved. A back-to-back is two credits: your credit to the intermediary, and a second, separate credit the intermediary opens in favour of the real supplier, using yours as security. Nothing in UCP 600 defines it, because from the rules’ point of view there is no single instrument to define — there are just two ordinary credits that happen to be related by a bank’s internal risk decision.

Because it is a second issuance, it prices like one. The same DBS schedule lists general import credit issuance at 1/4% flat with a HK$500 minimum and back-to-back issuance at 1/4% flat with a HK$800 minimum — same rate, minimum 60% higher — plus its own amendment fees. That gap is the bank pricing the extra risk of standing behind a credit whose repayment depends on a second credit performing.

Now the part that matters most in Yiwu, and it is not good news for either structure. Both transferable and back-to-back credits share one requirement: the party being paid must be able to present bank-grade documents in its own name — a commercial invoice, a transport document, and whatever else the credit demands. A market booth generally cannot do that, because it is not the export declarant on its own goods. No choice of credit type changes that.

Making the credit transferable so it can reach twelve booths solves nothing, because the booths cannot perform as second beneficiaries; it just adds a transfer fee to the same dead end. The workable answer is structural rather than documentary — the credit names one qualified exporter as beneficiary, and that exporter handles the booths behind it. We walk through why in the L/C mechanics guide.

Walk it through with real numbers. Say you are buying USD 80,000 of mixed goods from nine booths and one factory. Under a transferable credit you would need Field 43P set to Allowed, ten separate transfers, and ten parties each able to present compliant documents in their own name. On the DBS tariff those partial transfers alone are 1/4% with a HK$800 floor each — call it HK$8,000 at minimum before a single document is examined — and nine of the ten parties cannot present anyway. Under a consolidated structure you have one beneficiary, one presentation, one set of documents, and one discrepancy exposure. The credit type was never the lever. The supply structure was.

Revolving credits and other reuse structures the rulebook does not cover

If you buy the same goods on a repeating schedule — monthly replenishment of a steady SKU set — someone will suggest a revolving credit so you are not paying issuance fees twelve times a year. It is a sound idea. It also comes with a caveat nobody puts in the brochure.

UCP 600 does not contain the word “revolving”. Not once, in any of the 39 articles. Run the search yourself on ICC Publication No. 600. There is no definition, no reinstatement mechanism, no default rule about what happens when a drawing is made.

That is not a gap in the rules; it is a statement about where your protection comes from. With a transferable credit, if the credit is silent on something, Article 38 fills it in — the one-hop rule applies whether or not anyone wrote it down. With a revolving credit, if the credit is silent, nothing fills it in. The reinstatement terms are whatever the credit’s own wording says, drafted by your bank, and that wording is the entire contract.

So read that wording for three things specifically. Is it cumulative — does an unused balance from this month roll into next month, or is it lost? Does reinstatement happen automatically on a date, or only after the bank confirms the previous drawing was settled? And is there a stated maximum aggregate across all cycles, because your total exposure is not the face amount, it is the face amount times the number of revolutions. An importer who signs a USD 50,000 revolving credit with twelve automatic monthly reinstatements has committed to a USD 600,000 facility, and that is what the bank’s credit committee is looking at even if the number never appears on the front page.

Bank of China’s published import credit page lists revolving credits among the types it issues, alongside sight payment, deferred payment, acceptance, negotiation, transferable, confirmation and counter credits — so this is a real product you can ask for, not a textbook curiosity. Just understand that you are buying a bespoke contract rather than a named instrument with rules behind it.

Two close relatives deserve a mention and no more than that. Red clause credits let the beneficiary draw an advance before shipping; green clause credits do the same against warehoused goods. Both are real, both are rare in general merchandise, and neither is defined in UCP 600 or priced on the published schedule this article draws its other numbers from. We are not going to invent figures for them. If a supplier asks for one, treat it as a request for pre-shipment finance from you, and price it as credit risk rather than as a documentary question.

Standby credits are a different instrument wearing the same name

The single most common confusion on this topic is treating a standby letter of credit as just another type on the same menu. It is closer to a bank guarantee than to the credit that pays for your goods, and the giveaway is in what each one is designed to do.

• A commercial credit is designed to be drawn. The seller ships, presents documents, gets paid. Every drawing is the system working.
• A standby is designed not to be drawn. It sits behind a contract and is called only on default. A drawing means something went wrong — and it is usually the buyer’s performance being secured, not the seller’s.

They also run on different rulebooks, which is where the practical consequences are. UCP 600 Article 1 says the rules apply to any documentary credit “(including, to the extent to which they may be applicable, any standby letter of credit)”. That hedge is doing a lot of work, and it is the only time the word “standby” appears anywhere in UCP 600. The rules were not written for this instrument.

The rulebook that was is ISP98, the International Standby Practices 1998, published as ICC Publication No. 590 and effective 1 January 1999. It was drafted by the Institute of International Banking Law & Practice and endorsed by both the ICC and UNCITRAL. If your standby is subject to UCP 600 rather than ISP98, it is being governed by rules that expressly describe themselves as only partly applicable to it.

You can check which one you got in one field. SWIFT Field 40E, “Applicable Rules”, is mandatory on the MT700, and its valid codes include UCP LATEST VERSION и ISP LATEST VERSION as distinct entries — along with EUCP LATEST VERSION, UCPURR LATEST VERSION, EUCPURR LATEST VERSION и OTHR. One line on the advice tells you which body of law you are standing on.

And the pricing model is genuinely different, which is the thing to internalise before agreeing to one. On the DBS Bank (Hong Kong) schedule effective January 01, 2026, a directly issued standby or letter of guarantee is priced per month: 1/8% per month with a HK$1,000 minimum for a performance undertaking, and 1/6% per month with a HK$1,500 minimum for a financial one.

Compare that with the general import credit on the same schedule at 1/4% flat. A commercial credit is a transaction charge; a standby is a rental. On a twelve-month supply agreement, a standby’s monthly accrual dominates anything the commercial credit’s opening commission does, and the annualised cost is not comparable to the flat number your bank quotes for a normal credit. If someone shows you 1/8% next to 1/4% and implies the standby is cheaper, they have dropped the two most important words on the line.

How to check the type you were actually given

Everything above is about choosing. This part is about verifying, and it is the more valuable half, because Article 10(a) means a credit issued on the wrong terms needs the issuing bank, the confirming bank and the beneficiary all to agree before it can be fixed.

When the advice arrives, the type is encoded in five fields. Read them in this order and you will catch a mismatch in a couple of minutes rather than at presentation.

Then check what an amendment would cost before you need one, because the answer is not uniform. On the DBS schedule, an amendment that does not increase the amount or extend validity beyond six months is HK$500 on a general credit and HK$500 on a back-to-back. An amendment that does increase the amount or extend validity beyond six months carries the instruction “Refer DC Issuance Fee” — it reprices as a fresh issuance. Cancelling is HK$500. So the cheap amendments are the cosmetic ones, and the two changes an importer most often needs after a production delay — more money, more time — are exactly the two that cost like opening a new credit.

One last reason the type conversation and the document conversation cannot be separated. The ICC Banking Commission’s own Technical Advisory Briefing No. 3, dated 27 June 2022, opens by stating that “the global percentage of documents refused on first presentation under documentary credits ranges between 65-80%”. The same briefing notes that in the most recent ICC survey to address the question — Rethinking Trade & Finance, 2017 — 26.7% of respondents reported a decrease in refusal rates, 12.3% reported an increase, and 58.9% reported no change whatsoever. Those are the ICC’s figures and its dates, not a current-year measurement.

Why that belongs here: every extra party your credit type introduces is another party preparing documents. A transferred credit has a second beneficiary preparing its own presentation and a first beneficiary substituting invoices on top of it. A back-to-back has two full document sets under two credits. Against a refusal rate in that range, structural complexity is not free even when the fee schedule says the transfer only cost HK$450. If you are weighing a simpler structure against a cleverer one, weight the simpler one more heavily than the fee difference alone suggests.

For how those refusals actually get charged back to you, the per-set discrepancy fees and the rest of the cost stack are laid out in our breakdown of L/C charges. And if this whole exercise is starting to look expensive for the order size in front of you, that is a legitimate conclusion — for smaller mixed consignments a deposit-and-balance arrangement often beats a credit on both cost and friction, which we compare against the alternatives in our guide to China sourcing payment terms and in more detail on the 30% deposit structure.

Watch: how a documentary credit runs end to end

A neutral walkthrough of the documentary credit process from Drip Capital, a trade-finance lender. Useful background on the mechanism this article’s type forks sit on top of.

Choosing, in One Line Each

• Take a sight credit unless you have a specific reason not to. Simplest to draft, fewest parties who can generate a discrepancy. Move to deferred payment or acceptance only when the working-capital gap justifies a commission that accrues for the whole tenor.
• Add confirmation only when the seller names the risk he is pricing. Issuing-bank risk or country risk are good answers; “our policy” is not. Get the quotation before agreeing in principle.
• Treat transferable as a narrow tool, not a multi-supplier solution. It works when your immediate seller is an intermediary and the ultimate supplier is itself a qualified exporter. Not one hop deeper, not with partial shipments barred, and not at all against suppliers who cannot present documents in their own name.
• Ask for a revolving credit only after reading its reinstatement clause. Cumulative or not, automatic or conditional, and what the aggregate ceiling is. The rules will not rescue a vague one.
• Do not let a standby be sold to you as a cheaper letter of credit. Different rulebook, different purpose, and a per-month price that only looks small beside a flat one.

Frequently asked questions