Irrevocable Letter Of Credit - ILOC


DEFINITION of 'Irrevocable Letter Of Credit - ILOC'

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.


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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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  1. How would a standby letter of credit be used during an export transaction?

    A standby letter of credit is typically used to provide a bank guarantee of payment for an exporter in the event that an ... Read Full Answer >>
  2. When is it necessary to get a letter of credit?

    A letter of credit is used when parties in a transaction don't know each other well and they want to be sure that each party ... Read Full Answer >>
  3. What's the difference between a bank guarantee and a letter of credit?

    A bank guarantee and a letter of credit are similar in many ways but they're two different things. Letters of credit ensure ... Read Full Answer >>
  4. How long does a stock account have to be dormant before it can be escheated?

    A stock account is typically considered dormant and eligible for escheatment after five years of inactivity; however, this ... Read Full Answer >>
  5. Do banks have working capital?

    The concept of working capital does not apply to banks since financial institutions do not have typical current assets and ... Read Full Answer >>
  6. How does investment banking differ from commercial banking?

    Investment banking and commercial banking are two primary segments of the banking industry. Investment banks facilitate the ... Read Full Answer >>

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