D-1-2-2- The irrevocable and confirmed documentary credit


Payment processing is one of the main preoccupations of companies with international transactions. Doing business is important, but compensation is essential. Esandis offers you free training space dedicated to international transactions, and all the skills you need to become an export or import manager. Our objective is to provide you an understanding of the importance of the payment component of an international transaction.

The documentary credit is one of these payment techniques. The irrevocable and confirmed documentary credit is one of its variations.

1-2-2-1- The documentary credit : reminder

A documentary credit is therefore a payment technique and it is universally used within the scope of international transactions. It is one of the most secure payment techniques. This technique involves the respective importer and exporter banks. They become the guarantors of the transactions, permitting the exchange of the documents against the payment of the goods.



1-2-2-2- The irrevocable documentary credit: reminder

As with revocable documentary credits, the irrevocable documentary credit is a written commitment via the respective importer and exporter banks to both deliver the goods to the importer, and to compensate the exporter. In case of non-payment, the importer's bank pays the exporter.

This type of documentary credit can not be amended, revoked or canceled by mutual written agreement. It is, therefore, as the name suggests, "irrevocable.

1-2-2-3- The irrevocable and confirmed documentary credit: general

The irrevocable documentary credit is here "confirmed". It is a commitment made by the confirming bank, as its name indicates, to pay the invoice amount in case of failure. Le crédit documentaire a ceci de particulier qu'il possède des variantes adaptées à chaque besoin. Le crédit documentaire irrévocable et confirmé en est un exemple. Le crédit documentaire irrévocable est donc ici "confirmé". C'est ici en effet un engagement pris par la banque confirmante, comme son nom l'indique de payer le montant de la facture en cas de multiples défaillances.

1-2-2-4- The irrevocable documentary credit: advantages

This payment technique has a lot of advantages:
  • This is an irrevocable commitment on the part of the issuing bank to pay and accept the drafts that are presented.
  • The irrevocable documentary credit is somewhat unique in the sense that it gives the recipient greater assurance of payment.
  • In all cases of failure, the bank will pay the amount written on the invoice.
  • The bank also provides the importer assurance that the payment is dependent on the exporter meeting its contractual obligations, for example, the shipment of the goods.

1-2-2-5- The irrevocable and confirmed documentary credit: an additional advantage

The irrevocable and confirmed documentary credit has another particularity; it must be confirmed by the confirming bank. It's an unequivocal commitment in addition to the commitment from the issuing bank.

1-2-2-6- The irrevocable documentary credit: drawbacks

This type of payment technique is quite complex to implement and will require either the recruitment of an export or import manager, or working with a qualified bank institution. In essense, the responsibilities of each party are established as follows:
  • Only the importer's bank will guarantee payment.
  • the exporter becomes dependent on the importer's bank.

1-2-2-7- The irrevocable and confirmed documentary credit: drawbacks

There are no drawbacks, as opposed to the irrevocable and non-confirmed documentary credit, other than the complexity implementation. It is therefore, in our opinion, one of the safest payment techniques.