what is an irrevocable letter of credit iloc 
an irrevocable letter of credit iloc is an official correspondence from a bank that guarantees payment for goods or services being purchased by the individual or entity referred to as the applicant that requests the letter of credit from an issuing bank an irrevocable letter of credit cannot be canceled nor in any way modified except with the explicit agreement of all parties involved the buyer the seller and the issuing bank for example the issuing bank does not have the authority by itself to change any of the terms of an iloc once it is issued understanding irrevocable letters of credita letter of credit is issued by a commercial bank guaranteeing that a buyer s payment to a seller will be received on time and for the correct amount in the event that the buyer is unable to make a payment on the purchase the bank will be required to cover the full or remaining amount of the purchase due to the nature of international dealings including factors such as distance differing laws in each country and difficulty in knowing each party personally the use of letters of credit has become a very important aspect of international trade although an iloc is irrevocable while it is in force generally the time period during which a proposed transaction is expected to be completed an iloc expires at a specified point in time which is noted in the letter of credit 1iloc specificationsirrevocable letters of credit are official bank correspondence transferred and authenticated through the society for worldwide interbank financial telecommunications swift banking system this is a global setup for facilitating financial transactions between banks or other financial institutions and an iloc is transmitted as mt700 message type 700 2an iloc provides greater security of payment to the beneficiary of the letter who is commonly the seller in a transaction ilocs are frequently sought for large construction projects because they are not subject to claims of preference in the event of a bankruptcy ilocs are most commonly used to facilitate international trade because of the additional credit risk involved when two parties unfamiliar with each other are transacting business across national borders an iloc assures the seller of receiving payment because it is a guarantee by the issuing bank the buyer s bank that it will make payment in the event the buyer fails to do so by providing the seller with an assurance of payment an iloc also assists the buyer in arranging a transaction that the seller might otherwise be reluctant to make 