Whether you are entering into a trade in the domestic and international market, Letters of credit can help protect all the parties involved in the business dealing. The undertaking signed by both parties helps in mitigating the risk involved in trading. There are various types of letters of credit and each is designed to help both sellers and buyers and ensures that the terms and conditions of the agreement, purchase, and delivery are met.
An irrevocable letter of credit (ILOC) is a documentary credit that cannot be canceled or amended without the consent and presence of all the parties involved in the transaction. There are various things that can result in the fulfillment of the letter of credit or fraud related to business transactions like misunderstandings, unlawful industry practices, false information and much more. Below we have listed five things that you need to know about Irrevocable letter of credit (ILOC).
SWIFT
First of all, make sure that your irrevocable letters of credit are prepared as per the guidelines of the Society for Worldwide Interbank Financial Telecommunications (SWIFT) banking system. This banking system ensures that each document is authenticated thoroughly and each of the parties involved in the trade is protected.
Greater Security
When you sign an ILOC you make sure that the primary beneficiary of the letter, i.e. the seller is protected against all kinds of risk involved in the transaction. When the ILOCs are signed, the seller gets the full payment from the bank in the event of the buyer’s bankruptcy.
Irrevocable Terms
As the name suggests an irrevocable credit means that the issuing bank will or the buyer will not be able to make any changes to the terms and conditions of the of credit without the knowledge of the seller. In case either of the parties wants to make an amendment, all parties concerned should be present to agree to the same.
Seller’s Interest
The primary objective of ILOC is to safeguard the interest of the exporter. When the letter of credit is signed, the documents are honored by the issuing bank as well as the buyers and no changes are made to the agreement without the consent of the seller.
Uniform Customs & Practice
As per the guidelines by the International Chamber of Commerce (ICC), the LC must clearly state whether it is revocable or irrevocable credit, in case there is no such mention, the credit is considered as irrevocable as per the guidelines mentioned under Article 6. Call us now if you would want to know more information.
