Irrevocable Letter Of Credit - ILOC

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What is an 'Irrevocable Letter Of Credit - ILOC'

An irrevocable letter of credit (ILOC) is correspondence issued by a bank guaranteeing payment for goods and services purchased by the one requesting the letter. An irrevocable letter of credit, or ILOC, cannot be canceled or modified in any way without explicit consent by the affected parties involved. For example, the issuing bank has no power to change the terms of an ILOC simply because the letter requester is having second thoughts. It should be noted, however, that ILOCs are in effect only for a specified time period and do, in fact, expire at a pre-determined point.

BREAKING DOWN 'Irrevocable Letter Of Credit - ILOC'

Like many other forms of bank correspondence, irrevocable letters of credit are transferred and authenticated through SWIFT, as MT700s (message type 700). ILOCs give far more payment security to beneficiaries than revocable letters of credit and are particularly desirable for construction projects. This is because they are not subject to claims of preference in the result of a bankruptcy filing.

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RELATED FAQS
  1. What are the different types of letters of credit?

    Learn more about the different types of letters of credit that are used to facilitate exchanges between parties that might ... Read Answer >>
  2. When is it necessary to get a letter of credit?

    Capitalize on assets and negate risks by using a letter of credit. Letters of credit are often requested for buying, selling ... Read Answer >>
  3. When are you legally required to get a letter of credit?

    Learn how exporters or importers who deal in international trade use letters of credit to ensure that transactions are safe, ... Read Answer >>
  4. What is a bank's legal liability when issuing a letter of credit?

    Learn the responsibility of banks that issue letters of credit Letters of credits ensure payment on transactions between ... Read Answer >>
  5. Can entities other than banks issue letters of credit?

    Obtaining a letter of credit from a non-bank is legally acceptable according to the ICC, but companies tend to prefer to ... Read Answer >>
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    Learn what a standby letter of credit is and how it works, as well as how a standby letter of credit is typically used for ... Read Answer >>
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