Irrevocable Documentary Credit

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An irrevocable documentary credit constitutes a definite legal undertaking of the issuing bank. It cannot be amended or cancelled without the agreement of the issuing bank, the confirming bank (if applicable) and the beneficiary .

Thus, the beneficiary can expect payment from the issuing bank (or nominated bank) provided the stipulated documents are presented and the terms and conditions of the credit are duly complied with.

An irrevocable credit only carries the legal undertaking of issuing bank to remit. The bank which advises the credit does not undertake to pay. This kind of credit is known as an (unconfirmed) irrevocable credit.

If the beneficiary wishes the advising bank to additionally guarantee payment, he should arrange for the irrevocable credit to be confirmed by the advising bank (or another suitable bank). This credit is then known as a confirmed and irrevocable documentary credit.

Confirmed and Irrevocable Documentary Credit

If an irrevocable credit is confirmed by the advising bank (or any other suitable bank), the credit is known as confirmed and irrevocable documentary credit.

Under this credit, the advising bank which confirms the credit also guarantees the payment in addition to the legal undertaking of the issuing bank. The confirming (advising) bank thus assumes the obligations of the issuing bank with respect to paying the beneficiary.

Accordingly, the beneficiary now has the written legal undertakings of both the issuing bank and the confirming (advising) bank, provided, of course, he presents the stipulated documents and strictly complies with the terms and conditions of the documentary credit.

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