What Is an Irrevocable Letter of Credit?

Irrevocable Credit refers to a letter of credit that an issuing bank cannot modify or revoke unilaterally without the consent of the parties to the letter of credit during the validity of the letter of credit. Most of the international trade uses are irrevocable letters of credit. ^[1]

Irrevocable Letter of Credit

Irrevocable Credit refers to a letter of credit that an issuing bank cannot modify or revoke unilaterally without the consent of the parties to the letter of credit during the validity of the letter of credit. Most of the international trade uses are irrevocable letters of credit. ^[1]

An irrevocable letter of credit refers to a letter of credit that, once issued by the issuing bank, cannot be modified or cancelled at will without the consent of the parties involved, such as the beneficiary or the negotiating bank; The securities bank (or its designated bank) guarantees payment of the goods. Irrevocable Credit

Irrevocable letters of credit have the following characteristics:

1. Have a payment commitment as determined by the issuing bank.

For an irrevocable documentary credit, when all the required documents are submitted to a designated bank or issuing bank and the terms and conditions of the credit are met, it constitutes a confirming commitment of the issuing bank to pay at a fixed time in the credit.

The payment commitments established by the issuing bank are:

(1) Letter of credit for spot payment-spot payment;

(2) Letter of credit for deferred payment-payment according to the due date determined by the letter of credit;

(3) For the acceptance letter of credit-a. For the acceptance by the issuing bank, the beneficiary of the acceptance beneficiary pays the bill by the issuing party and pays the bill on the due date; b. The bank acceptor, if the bank specified in the letter of credit does not accept the draft as the payer, it shall be accepted by the issuing bank and the beneficiary shall pay the bill issued by the beneficiary on the due date. ; Or, if the drawee bank has accepted the bill but fails to pay it on the due date, the issuing bank should pay;

(4) Negotiable letter of credit-payment shall not be recoursed to the drawer or good faith holder according to the bill of exchange and / or documents submitted by the beneficiary in accordance with the letter of credit.

2. Irrevocable.

This means that the issuing bank will be bound by its terms and commitments from the date of issuance of the letter of credit. In the event of revocation or modification, the terms of the original L / C will remain in effect for the beneficiary until the beneficiary indicates to the bank that notified the amendment that the amendment is accepted.

Of course, with the consent of the issuing bank, confirming bank, and beneficiary of the letter of credit, even an irrevocable letter of credit can be revoked and modified.