Documentary credits are very often used to settle the payment obligation of a buyer and, in the context of an issuing bank, may be defined as:
an irrevocable undertaking given by a bank whereby it undertakes to honour a presentation of documents submitted in accordance with the terms and conditions of the documentary credit
and in compliance with Uniform Customs and Practice for Documentary Credits (UCP).
Irrevocable Documentary credits:
With an ‘irrevocable undertaking given by a bank’, an issuing bank, on behalf of a buyer of goods, services or performance, issues an undertaking that it agrees not to amend or cancel without the consent
of the beneficiary or a confirming bank, if any. Once a documentary credit is issued, the buyer will become known as the ‘applicant’. A seller requiring payment by documentary credit should always insist that it be an irrevocable credit. Revocable credits do exist but they are seldom used,
and Uniform Customs and Practice for Documentary Credits (UCP) no longer makes reference to them.
A revocable credit can be cancelled at any time and without the consent of a beneficiary. A bank should never confirm a revocable credit. A seller will prefer a guaranteed method of payment that can be achieved through the issuance of an irrevocable credit.