large international trades for which special settlement systems called Irrevocable Letters of Credit (ILC) are used. There are special difficulties when the physical transactions are large in quantity and value, when the buyer and seller are in different countries and when lengthy sea voyages are required. The buyer does not want to pay for the shipment until he is certain that he will receive it and that it meets specifications. The seller, on the other hand, does not want to ship the goods until he is certain that he will be paid.
The solution is for the buyer to go to his local bank and open an ILC in favour of the seller’s bank, or possibly his bank’s agent bank in the seller’s country. Irrevocable means just that, it cannot be cancelled once it has been issued. It is effectively a guarantee by the buyer’s bank to the seller’s bank that once the shipment arrives in the buyer’s home port and is of correct specification, the seller’s bank can pay the seller under the ILC and claim the money from the buyer’s bank.