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Simple English definitions for legal terms
revocable letter of credit
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A quick definition of revocable letter of credit:
A revocable letter of credit is a document issued by a bank that promises to pay a third party (the beneficiary) if they meet certain conditions. It is called "revocable" because the bank can cancel it at any time. This type of letter of credit is not commonly used because it does not provide much security for the beneficiary.A more thorough explanation:
A revocable letter of credit is a type of letter of credit that can be cancelled or withdrawn by the issuing bank at any time, without prior notice to the beneficiary. This means that the beneficiary cannot rely on the letter of credit as a guarantee of payment, as it may be revoked at any time.
For example, if a buyer requests a revocable letter of credit from their bank to purchase goods from a seller, the seller cannot be sure that they will receive payment, as the letter of credit may be cancelled by the buyer's bank before the payment is made.
Revocable letters of credit are not commonly used in international trade, as they do not provide the same level of security as irrevocable letters of credit, which cannot be cancelled or withdrawn without the consent of all parties involved.