Irrevocable Letter of Credit

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This type of letter of credit entails a guarantee from the issuing bank of the specified payment if the drawee complies with all conditions.

How does an Irrevocable letter of credit work?

ILOCs offer buyers and sellers security through their respective banks. The buyer does not have to pay anything until the cargo is shipped. As long as the seller meets the conditions of the letter, he or she will be paid. The ILOC is based on the details of the letter and the attached documents. There are, however, the same basic elements in every LC. Listed below are these elements and conditions.

The bank guarantees payment
The LC is issued on behalf of the buyer to pay the seller the specified amount
Verification of a supply of goods/services requires a specific set of documents
Dates, locations, time limit, and method of payment must be specified
The attached documents must meet the terms of the LC

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