Irrevocable letter of credit
A letter of credit that cannot be modified or cancelled without the agreement of all parties, providing maximum security to the beneficiary.
An irrevocable letter of credit is a firm and definitive undertaking by the issuing bank. It cannot be modified, amended or cancelled without the explicit consent of all parties: the issuing bank, the confirming bank (if any) and the beneficiary.
Since the entry into force of UCP 600 in July 2007, every letter of credit is presumed irrevocable unless otherwise stated. This change formalised the existing commercial practice that had already abandoned revocable credits.
Key characteristics include:
- Firm undertaking by the issuing bank to pay, accept or negotiate
- Seller protection against unilateral cancellation by the buyer
- Contractual stability: terms are frozen once the credit is issued
- Amendments only with unanimous agreement of all parties
The irrevocable L/C is the standard in international trade. It can be further strengthened by a confirmation, adding the commitment of a second bank, usually located in the seller's country.