a non-operative lc is issued but either not-accepted or advised or it lacks an activation otherwise, usually in a documentary letter of credit it is issued either non-clean (means it has provisions outside the lc wording, which is generally not a bright idea) or it needs amendments to have the operational status.
a non-operative letter of credit has no value and only indicates that there is a chance for some business, accounting wise it can not be booked as a receivable therefore can not be used as a collateral but only a future collateral.
I have used non-operational dlc's when I was sure I wanted to buy and wanted to make sure an otherwise shaky situation of the supplier with his bank got stabilized when they saw that their client had a good prospect. I had situations where the bank of the beneficiary asked to allow a pledge or other accomodations but I only granted these when we had a firm arrangement between us and the bank.
This however does not apply to the accomodation letter of credit which is never issued to be completed or made operational and is mostly a scam.
In most juridictions it is seen as fraud when such a letter of credit is booked as receivable or any other support for financial data and following support for a transaction of any kind. The reason is that it is a misrepresentation that there is a claim for payment for the purpose of either getting a credit or enhancing financial standing to prolong or outride placement of debt.
If such accomodation letter of credit is paid for and it was never to be made operative it is also a defrauding of the beneficiary if he/she was not aware of that fact or just part of an elaborate fraudulent propossal. Even if such does not work the attempt in itself is more than a misdemenor.
In times where such financial crime is followed up it is not advisable to transact such accomodations because banks now have a warning system and notify the authorities with a suspicious activity report.
Like I said before, it can have freedom debilitating results, beside the lost money and time that is.
