WHAT IS A REVOCABLE LETTER OF CREDIT?
A Revocable letter of credit is a documentary credit that can be amended or canceled without prior notice to the receiver (sellers). As the revocable letter of credit can be amended, canceled, or revoked at any time and it cannot be confirmed.
Any letter of credit is by default irrevocable in contract terms. If the issuing bank or the buyers require a revocable letter of credit, it has to be clearly mentioned in the LC contract explicitly. A Revocable letter of credits an uncommon form of LCs used in international trade. The prime purpose of an LC is to offer assurance to the second party.
The revocability clause of the LC remains effective until the documents are not presented for clearing with the advisory bank. Once the supplier (second party) presents the documents and meets the sales contract terms, the revocability clause does not come into effect.
Types Of Revocable Letter of Credit
By credit type and payment terms, the revocable LC can take different forms. A letter of credit can be backed by collateral or an unsecured form. It can be transferable, revolving, confirmed, or unconfirmed in nature. A revocable LC is always unconfirmed by definition.
Revocable and Transferable
The issued LC is revocable in nature and can be transferred to the other beneficiaries. The credit transfer becomes highly unlikely as the revocability clause limits its functionality.
Revocable and Standby
The LC is revocable and comes with standby features. A standby LC mitigates the losses due to unfavorable circumstances to the suppliers.
Revocable Secured LC
The issued LC is secured by collateral from the buyer.
Revocable Un-secured LC
The issued LC does not come with any collateral cover from the buyer. Issuing banks consider the buyer’s creditworthiness as the sole collateral.
Bandenia Challenger Bank
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