TRADE FINANCE FOCUS ON : Irrevocable Credit

Irrevocable Credit

Means the credit cannot be amended or cancelled without the agreement of all parties (the beneficiary, the applicant and the issuing bank). A credit therefore should clearly indicate whether it is revocable or irrevocable. In the absence of such indication, the credit shall be deemed to be irrevocable. An irrevocable letter of credit can neither be amended nor cancelled without the agreement of all parties to the credit. Under UCP500 all letters of credit are deemed to be irrevocable unless otherwise stated.

An irrevocable Letter of Credit constitutes a definite undertaking on the part of the Issuing Bank to the beneficiary and/or Negotiating Bank that the provision for acceptance/payment of negotiation as contained in the Credit will be duly honoured, provided that all the terms and conditions of the Credit are complied with.

The issuing bank usually advises a letter of credit to the beneficiary through a correspondent bank or an advising bank in the country of the beneficiary. The correspondent bank or advising bank may be instructed to merely advise the beneficiary of the letter of credit or to add its confirmation to the credit if requested by the applicant.

With an unconfirmed irrevocable letter of credit, the beneficiary is exposed to the credit risks of the issuing bank including the political and economic climate of the issuing bank’s country.