Difference Between Revocable Letter of Credit and Irrevocable Letter of Credit As the title thanks

There are 3 differences between a revocable letter of credit and an irrevocable letter of credit:

First, the overview of the two is different:

1. Overview of revocable letter of credit: Revocable letter of credit is the symmetry of irrevocable letter of credit. The bank that issued the L/C has the right to unilaterally modify or revoke the L/C at any time without the consent of the beneficiary (exporter) after the L/C is issued.

2. Overview of irrevocable L/C: Irrevocable L/C refers to a L/C that cannot be unilaterally modified or revoked by the issuing bank without the consent of all parties involved in the L/C.

Second, the characteristics of the two are different:

1. Characteristics of revocable L/C: The characteristics of revocable L/C are mainly to safeguard the interests of the issuing bank, if the importer appears or is in a predicament due to changes in the market, transportation and other circumstances, or even collapses, the issuing bank can revoke or modify the L/C that has been issued at any time. Therefore, a revocable letter of credit is not guaranteed to the exporter and is risky.

2. Characteristics of irrevocable L/C: For irrevocable documentary credit, when all the documents specified in it are submitted to the designated bank or issuing bank and meet the terms and conditions of the L/C, it constitutes a definite commitment of the issuing bank to pay according to the fixed time of the L/C.

Where the issuing bank accepts, the acceptance beneficiary issued by the issuing bank to pay the bill, and pay the bill on the due date; If the beneficiary bank specified in the letter of credit does not accept the bill of exchange with which it is the payer, the issuing bank shall accept and pay the bill of exchange issued by the beneficiary on the maturity date; Alternatively, if the drawee bank has accepted the bill of exchange but does not pay it on the due date, the issuing bank shall pay it.

Third, the use of the two is different:

1. The use of revocable L/C (in international practice, exporters are willing to accept revocable L/C as a means of payment, generally speaking, revocable L/C can be used in the following circumstances):

1) The contract goods can sell well through a certain channel, and it is expected that the market will have an upward trend after the transaction, and the profits will be higher; Or when the importer has financial difficulties, but the reputation is relatively good, the revocable letter of credit can be used.

The exporter is aware of the risk of using a revocable letter of credit, but does not want to lose the opportunity to close the deal, as the saying goes, opening a revocable letter of credit is better than closing the deal without a letter of credit. Therefore, a revocable letter of credit may be accepted as a form of payment.

2) If the issuing bank revokes the L/C for some reason, but the contract signed between the exporter and the importer cannot be revoked, it can exercise its rights against the importer in accordance with the terms stipulated in the contract to obtain payment for the goods.

2. The use of irrevocable letters of credit: most of the international ** used are irrevocable letters of credit.

Revocable letter of credit refers to a letter of credit that the issuing bank has the right to cancel or modify at any time without the consent of the beneficiary and without prior notice to the beneficiary. This type of letter of credit lacks protection for the beneficiary, so it is not often used in actual business. An irrevocable letter of credit refers to a letter of credit that once a letter of credit is issued, the issuing bank may not unilaterally modify or revoke the letter of credit without the consent of the beneficiary and the relevant parties during its validity period.

As long as the documents provided by the beneficiary comply with the provisions of the L/C, the issuing bank must fulfill the payment obligation. Such letters of credit are clearly marked with the word "irrevocable". Due to the high degree of bank credit and the protection of beneficiary's rights, this type of L/C is used by foreign-invested enterprises.

Confirmed Letter of Credit Unconfirmed Letter of Credit Confirmed Letter of Credit (confirmed L c) means that in order to ensure the safe collection of foreign exchange, the exporter requires that the letter of credit issued by the issuing bank must be guaranteed by another bank. The bank that confirms the letter of credit is called the confirming bank. Once confirmed, the confirming bank bears the same payment liability as the issuing bank.

The confirming bank is usually the advising bank, but sometimes it can also be another bank in the place of export or a bank in a third country. A letter of credit that has not been confirmed by another bank is an unconfirmed letter of credit (unconfirmed l c).

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Advantages: There is a payment commitment determined by the issuing bank. In the case of an irrevocable documentary credit, when all the documents specified in it are submitted to the designated bank or issuing bank and the terms and conditions of the letter of credit are met, it constitutes a definite commitment by the issuing bank to pay according to the fixed time of the letter of credit.

The payment commitment determined by the issuing bank is:

1) Letter of credit for demand payment - demand payment;

2) Letter of credit for deferred payment - payment according to the due date determined by the provisions of the letter of credit;

3) Letter of Acceptance - AWhere the issuing bank accepts, the acceptance beneficiary issued by the issuing bank to pay the bill, and pay the bill on the due date; b.If the beneficiary bank specified in the letter of credit does not accept the bill of exchange with which it is the payer, the issuing bank shall accept and pay the bill of exchange issued by the beneficiary on the maturity date; Alternatively, if the drawee bank has accepted the bill of exchange but does not pay it on the due date, the issuing bank shall pay it.

4) for the negotiation of the letter of credit - according to the beneficiary in accordance with the letter of credit issued by the bill of exchange and/or the documents submitted to the drawer or bona fide holder, there is no recourse.

Disadvantages: The risks faced by the importer as the applicant under the letter of credit are:

1. Forged documents. The exporter submits forged documents. There was no actual delivery.

or handing over worthless goods to defraud the importer. Since the letter of credit method is a "pure document business". The bank only examines whether the documents submitted by the beneficiary are "prima facie" with the terms of the letter of credit.

to decide whether or not to meet payment obligations. And regardless of the actual goods.

Therefore. If the beneficiary alters the documents to conform them to the terms of the letter of credit. Even fake documents are made.

Payment can also be obtained from the bank. The applicant will also pay the issuing bank due to the consistency of the documents. Thus becoming a victim of fraud.

Left with no money.

2. The substance of the goods does not match. Goods received by the importer may be late. Short or poor quality. As a result, the goods cannot be carried out as expected and the goods are lost. Especially in groups. That is, the exporter packs the goods in pallets or containers.

In the form of transportation in which larger loading and unloading units are formed to improve the efficiency of loading and unloading. The carrier is on what is in the box. It is not responsible whether the goods are in good condition or not.

As a result, some goods that do not conform to the contract may also be concealed through the form of integrated transportation. There has been a lack of major components for imported equipment. Imported goods are garbage.

Dangerous goods. ** cases of deception of importers. Most of them are shipped in groups.

The characteristics of an irrevocable letter of credit are as follows:

Irrevocable Credit: Once issued, the issuing bank shall not modify or revoke the letter of credit without the consent of the beneficiary or the negotiating bank and other relevant parties within the validity period; As long as the beneficiary provides the relevant documents in accordance with the provisions of the certificate, the issuing bank (or the bank designated by the beneficiary) guarantees to pay the full payment. Documentary means that the L/C requires the beneficiary to collect money from the issuing bank with the documents specified in the L/C.

In international ** settlement, irrevocable letters of credit are mostly used. If the words "irrevocable" or "revocable" are not indicated in the letter of credit, it shall be deemed to be irrevocable.

Export bills: refers to a short-term export financing business in which the enterprise (the beneficiary of the L/C) submits the documents under the L/C to the bank for negotiation, the bank (negotiating bank) reviews the documents with a full set of documents consistent with the documents submitted by the enterprise as a pledge according to the application of the enterprise, and after the audit is correct, advances the money to the enterprise with reference to the par amount, and then sends a bill to the issuing bank for foreign exchange, and collects the interest and bank fees from the enterprise and retains the right of recourse.

At present, letters of credit are irrevocable, that is, the letters of credit issued cannot be revoked, because the letter of credit is a letter of commitment from the bank to pay, and irrevocably protects the interests of the beneficiary. The main function of a transferable letter of credit is to facilitate the use of intermediaries, and the letter of credit can be transferred to the producer.