Based on the responsibility of the issuing bank, letters of credit can be divided into irrevocable letters of credit and revocable letters of credit.
(1) Irrevocable Letter of Credit (Irrevocable L/C).
An irrevocable letter of credit means that once issued, during its validity period, the issuing bank cannot unilaterally modify or revoke it without the consent of the beneficiary and the relevant parties. As long as the documents provided by the beneficiary meet the provisions of the letter of credit, the issuing bank must fulfill its payment obligations. This type of letter of credit is more secure for the beneficiary and is the most widely used in international trade. All irrevocable letters of credit should indicate the words “irrevocable” and contain text that the issuing bank guarantees payment.
(2) Revocable Letter of Credit (Revocable L/C).
A revocable letter of credit means that the issuing bank has the right to revoke or modify the letter of credit at any time without obtaining the consent of the beneficiary or the relevant parties. All revocable letters of credit should indicate the words “revocable” on the letter of credit. This type of letter of credit is extremely disadvantageous to the exporter, so exporters generally do not accept this type of letter of credit. It should be pointed out that the right of the issuing bank to revoke or modify a revocable letter of credit is not unlimited. According to the provisions of “UCP500”, as long as the beneficiary has obtained a guarantee of negotiation, acceptance or deferred payment in accordance with the terms of the letter of credit, the letter of credit cannot be revoked or modified. In other words, as long as the revocable letter of credit has been used by the beneficiary first, the revocation or modification notice of the issuing bank will not take effect. In view of the fact that most of the letters of credit issued internationally are irrevocable, therefore, it is stipulated in “UCP500” that if the words “irrevocable” or “revocable” are not indicated in the letter of credit, it should be regarded as an irrevocable letter of credit.