What is a LC confirmation?

What is a LC confirmation?

In its simplest terms, a confirmed Letter of Credit (“LC”) can be defined as a second guarantee by the confirming bank. The primary guarantee is made by the issuing bank which commits to pay the beneficiary of the Letter of Credit upon fulfillment of its terms.

Does an LC need to be confirmed?

A confirmed letter may be required if the seller is not satisfied with the creditworthiness of the first letter of credit. In many cases, the second bank is the seller’s bank. When the buyer gets the second letter, it confirms the first one and qualifies it as a confirmed letter of credit.

Why would an exporter insist on a confirmed letter of credit?

Exporters should consider getting confirmed LCs if they are concerned about the credit standing of the foreign bank or when they are operating in a high-risk market, where political upheaval, economic collapse, devaluation or exchange controls could put the payment at risk.

How is confirmation added in an LC?

When the Letter of credit is guaranteed by adding payment confirmation by the advising bank or any third bank ( Confirming Bank ) on behalf of the opening bank, it is termed as a confirmed LC. This undertaking is in addition to the undertaking provided by the issuing bank.

What is LC confirmation and discounting?

LC discounting is a short- term credit facility provided by the bank to the seller. In this case, LC issuing bank confirms all the original documents and provide acceptance to the confirming bank. After the due diligence from the bank, the seller will get the credit amount after deducting the discount.

What is the difference between confirmed LC and unconfirmed LC?

Main Institution – Under an unconfirmed LC, the original issuing bank is the main institution that provides an irrevocable payment guarantee to the exporter while a confirmed LC not only contains an irrevocable guarantee from the issuing bank but from the second bank also, known as a confirming bank.

What is silent confirmation in LC?

A silent confirmation, is a confirmation, issued to the beneficiary of a letter of credit, by which the silent confirmation bank undertakes to pay the beneficiary (thereby the beneficiary gains assurance of payment if for some reason the issuing bank refuses or cannot pay under the letter of credit (e.g. due to court …

Who is the confirming bank in a letter of credit?

In a letter of credit transaction, the confirming bank, also known as the confirmer, is a bank that, at the request of the issuing bank, agrees to perform the principal duties of the issuing bank.

What is the difference between confirmed and unconfirmed LC?

Who is confirming bank in LC?

What is irrevocable and confirmed letter of credit?

An irrevocable and confirmed letter of credit has not only the commitment of the issuing bank but also a binding undertaking given by the confirming bank to pay when the documents are presented in accordance with the terms and conditions of the credit.

Can the advising bank confirm a letter of credit?

An advising bank (also known as a notifying bank) advises a beneficiary (exporter) that a letter of credit (L/C) opened by an issuing bank for an applicant (importer) is available. An advising bank’s responsibility is to authenticate the letter of credit issued by the issuer to avoid fraud.