Irrevocable LC is a type of Letter of Credit that cannot be modified or canceled without the consent of all parties involved.
How It Works:
- Buyer requests the bank to issue a Letter of Credit.
- The bank issues an irrevocable commitment to the seller.
- The seller ships goods as per terms.
- Documents are submitted to the bank.
- Payment is made if terms are fulfilled.
Benefits:
- Provides strong payment security to the seller
- Reduces risk of non payment
- Builds trust between trading parties
- Ensures commitment from the issuing bank
Example:
An exporter ships goods only after receiving an irrevocable LC to ensure guaranteed payment.