This information applies to all parts of Procurement. The following paragraphs define some terms associated with letters of credit. A letter of credit is a document issued by a bank stating that if the named vendor complies with the letter's terms and conditions, then the bank will pay the vendor in accordance with the letter's terms. A letter of credit is documentary if the vendor must submit specified documents along with the application for payment. The documents usually relate to evidence that goods have been received and that money is due.
Most letters of credit are documentary.
Revocable and Irrevocable A revocable letter of credit can be cancelled or revoked by the buyer at any time before payment. An irrevocable letter cannot, and thus is a guarantee that if the vendor meets the letter's terms, the vendor will be paid. Conformed and Unconformed A second bank may conform a letter issued by the first bank, in which case the second bank has also agreed to honor requests for payment which meet the terms of the letter. A vendor could submit the request and any documentation to either bank. An unconformed letter is one where no second bank has assumed the letter's obligations.