HomeFWJ TakeawayBusiness fundingTrade financeIrrevocable letter of credit

An irrevocable letter of credit is used to facilitate a trade finance transaction between a buyer and seller with the assistance of their respective banks.

  • the buyer requests an irrevocable letter of credit from his bank, which is then sent to the seller usually via its bank.
  • an irrevocable letter of credit will specify fundamental details of the transaction, such as
    • price;
    • payment terms; and
    • time and place for delivery of goods.
  • provided these requirements are fulfilled, the issuing bank will make payment to the seller;
  • having accepted the obligation to issue the letter of credit, that letter of credit obligation is then irrevocable.

There are two types of irrevocable letter of credit

  • a confirmed irrevocable letter of credit; and
  • an unconfirmed irrevocable letter of credit.

A confirmed irrevocable letter of credit offers additional risk protection for the seller by providing a guarantee of payment from both the buyer’s bank and the seller’s (or a third party) bank. With an unconfirmed irrevocable letter of credit, the seller’s bank has no liability for payment and only acts as a go-between to transfer payment to the seller from the buyer’s bank.

Contact our team of expert banking and finance solicitors at Francis Wilks & Jones to help you with any issues you might be facing or questions which need answering in relation to irrevocable letters of credit. Our knowledge on the different types of letters of credit is comprehensive and our experience and legal expertise means that we can assist whatever the nature of your enquiry.

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