What is an irrevocable accreditation?
The adredit letter is a document from a financial institution, such as a bank that guarantees payment to meet the terms of trade agreement. A revocable accreditic letter cannot be canceled and therefore there is a way to reduce the risk of business. Common in international trade, irrevocable letters are used as a safe form of payment across the border and usually include two businesses and two banks. The buyers and the seller are guaranteed to receive a promised job or product from the other side, because intermediary banks will not pay unless companies perform agreed actions.
The appeal is just one type of credit letter. A credit letter may come up with different levels of protection. For example, a transferable letter of credit is when the seller can assign a part or all its right to accept the funds of another party.
When using the accreditation, two businesses - buyer and seller - I will register with the payment of the letter of credit through two intermediary banks - issuing banks and receiverí banks. The Buyer asks the Publishing Bank to create a letter of credit to allow payment if the seller meets specific requirements. After the seller completes specific actions, he must provide evidence such as transport revenue receiving the bank. The receiving bank verifies documents, asks and accepts funds from the issuing bank and pays the seller.
Although it may be canceled, it is not more often. If the seller, the Buyer and the Bank agrees, an irrevocable letter of credit can be adjusted. Otherwise, the buyer is legally obliged to pay sellers. If the buyer does not pay, the issuing bank is obliged to pay the seller and can seek payment from the buyer.
Credit letter is most commonly used in the Finance Trade, Funding International Trade, but is also permissible in national trade. The transaction structure provides the buyer and seller special forSecurity because he uses banks as an intermediary. Both transaction parties are ensured to receive agreed goods and payment. The Charian letter is awarded across borders, languages and legal differences.
The common mistake is to assume that the letter of credit and the credit line are the same. The credit line is similar to a pre -approved loan or credit card between the company and the bank. According to the line, business can draw on the loan line. Both terms are shortened as a loc, but the abbreviation most often refers to the credit line.