What are the differences between confirmed and unconfirmed letters of credit?

Letter of credit is an irrevocable undertaking of the issuing bank to honour a complying presentation.

The beneficiary of the letter of credit must be ascertain that she/he will get the payment from the issuing bank as long as she/he comply with the terms of the credit.

From the beneficiary's perspective, complying presentation must be equal to payment, without any excuses. But in reality, sometimes things work differently.

There are many risks in letters of credit, and significant amount of them stem from the issuing bank or the country of its residence.

As a result, in some situations the beneficiary may not be %100 sure that the issuing bank will make the payment under complying presentations.

What are the differences between confirmed and unconfirmed letters of credit?
What are the differences between confirmed and unconfirmed letters of credit?
For those instances, the beneficiary may seek another bank's payment undertaking added to the letter of credit, in addition to that of the issuing bank's.

The process is known as confirmation and the bank adding its confirmation to the credit is called as confirming bank.

If a letter of credit possesses a confirming bank's confirmation, then the credit becomes a confirmed letter of credit.

If a letter of credit reaches to the beneficiary with only issuing bank's payment undertaking, without confirmation added by another bank, then the credit becomes an unconfirmed letter of credit.

In today's post, you can find the main differences between a confirmed letter of credit and an unconfirmed letter of credit.

What is Confirmation? What are the Advantages of a Confirmed Letter of Credit?

Letter of credit is a payment method in international trade. I have been writing articles covering a variety of topics of letters of credit.

So far, I have defined what letter of credit is and explained its types, parties involved in and their roles and responsibilities, transaction steps and risks associated with different involving parties.

Additionally, you can find detailed information regarding issuing bank, confirming bank, nominated bank and advising bank on my previous posts.

What is Confirmation? What are the Advantages of a Confirmed Letter of Credit?


Today, I explain the concept of confirmation as well as its main advantages to exporters.
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