Types of Letters of Credit: Examples and Comparison
The main types of Letter of Credit compared in one table — sight, usance, confirmed, transferable, back-to-back, revolving, red clause and standby — with when each fits.
3 min readUpdated 2026-10-13Written by LCCheck team
Short answer
Letters of Credit are classified in three ways: by when the seller is paid (sight, usance or deferred payment), by who stands behind the payment (unconfirmed or confirmed), and by how the credit is structured (transferable, back-to-back, revolving, red clause). Standby credits are a separate family used as a guarantee rather than a payment method. Most credits combine several types at once.
In this guide
| Almost all modern credits | Irrevocable under UCP 600 |
|---|---|
| Most common for exporters | Irrevocable sight or usance, often confirmed |
| Guarantee-style | Standby LC, often under ISP98 |
| Where the type shows | MT700 fields 40A, 41a, 42C and 49 |
Three questions that define any credit
Labels like 'confirmed irrevocable sight LC' look complicated, but each word answers a simple question. When is the seller paid? Who promises to pay? Is the credit shaped for a special trading structure? Asking these three questions in order lets you place any credit in a few seconds, and tells you what risk remains with you.
Since UCP 600 took effect in 2007, every credit subject to those rules is irrevocable, so the old revocable type has practically disappeared. The irrevocable label still appears in field 40A, and it matters: the issuing bank cannot cancel or change the credit without the beneficiary's agreement. See irrevocable letter of credit.
Comparison table
| Type | What it means | Who it suits | Main watch-out |
|---|---|---|---|
| Sight | Paid when compliant documents are presented | Sellers needing cash quickly | Discrepancies still delay payment |
| Usance / deferred | Paid a set number of days later | Buyers needing time to sell the goods | Seller carries bank risk until maturity |
| Confirmed | A second bank adds its own promise | Sellers worried about the issuing bank or its country | Confirmation fee; documents must still comply |
| Transferable | First beneficiary can pass it to a supplier | Traders and intermediaries | Only if the credit says transferable |
| Back-to-back | A second credit issued on the strength of the first | Traders who cannot use a transferable credit | Two credits must line up exactly |
| Revolving | Amount reinstates for repeat shipments | Regular supply contracts | Cumulative vs non-cumulative rules |
| Red clause | Allows advance payment before shipment | Sellers needing pre-shipment funding | Applicant bears advance risk |
| Standby | Pays only if the applicant fails to perform | Guarantee of payment or performance | Different rules and claim documents |
How the type shows in an MT700
Field 40A states the form, such as IRREVOCABLE or IRREVOCABLE TRANSFERABLE. Field 41a says how the credit is available — by payment, acceptance, negotiation or deferred payment — and that tells you whether it is sight or usance. Field 42C gives the tenor of any draft, for example AT SIGHT or 90 DAYS AFTER BILL OF LADING DATE. Field 49 shows confirmation: CONFIRM, MAY ADD or WITHOUT. Decode a real message with the MT700 decoder or explore the interactive LC example.
Choosing a type
A seller should start from risk. If the issuing bank or its country is a concern, ask for confirmation by a bank you trust. If the buyer needs credit terms, a usance credit lets the seller agree a payment date while still relying on a bank, and the seller can often discount an accepted draft to get cash early. If you are a trader buying from one supplier and selling to another, a transferable credit is usually simpler than back-to-back. See confirmed vs unconfirmed, transferable credits and back-to-back credits.
Buyers usually prefer usance for cash flow and want strict, clear document requirements. Both sides should agree the type in the sales contract before the credit is issued, because changing it later needs an amendment and the agreement of every party.
Standby credits are a different tool
A standby Letter of Credit is expected not to be used. It pays only if the applicant fails to pay or perform, against a demand and any documents the standby requires. Standbys are often issued under ISP98 rather than UCP 600. LCCheck currently checks documentary credits, not standby claims. See standby letter of credit.
Example: naming a credit
A fictional credit shows 40A IRREVOCABLE, 41D ANY BANK BY ACCEPTANCE, 42C 60 DAYS AFTER SIGHT and 49 CONFIRM. It is an irrevocable, confirmed usance credit: the seller is paid 60 days after the bank accepts the draft, and both the issuing and confirming banks are bound.
Questions
What is the most common type of Letter of Credit?
An irrevocable documentary credit subject to UCP 600, payable at sight or after a fixed usance period. Confirmation is added when the seller wants a second bank's promise.
Sources
- ICC — UCP 600, Uniform Customs and Practice for Documentary Credits
- ICC Academy — trade finance learning
- US International Trade Administration — Letters of Credit
General guidance, not legal advice. Rules are explained in our own words; read the official ICC and Swift texts for exact wording. Your bank examines documents independently.
Related guides
Review the LC terms before acceptance
See deadlines, documents and risks in your Letter of Credit in under a minute.
PDF · up to 25 MB