Letters of credit can be revocable
or irrevocable. An irrevocable letter of credit means that once the seller has accepted the
credit, the buyer cannot alter it in any way without permission of the seller. Added protection is gained if the buyer is required to confirm the letter of credit through a U.S. bank.
This irrevocable, confirmed letter of credit means that a U.S. bank accepts responsibility
to pay regardless of the financial situation of the buyer or foreign bank. From the seller’s
viewpoint, this step eliminates the foreign political risk and replaces the commercial risk
of the buyer’s bank with that of the confirming bank. The confirming bank ensures payment
against a confirmed letter of credit. As soon as the documents are presented to the bank, the
seller receives payment.