Friday, April 29, 2011

Confirmed / Unconfirmed 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 otherwise it is an unconfirmed LC. The confirming bank also becomes a party to the contract of LC after confirming it. Generally, the confirmation to a credit is desired by beneficiary from a bank known to him preferably the one located in his country so that his risk becomes localized and he can deal easily with a local bank rather than dealing with a bank abroad which has issued the LC. A confirmed LC is preferred when the beneficiary is not able to ensure payment surety from the issuing bank and or have less faith on it. confirmed LC is costly since it includes the confirmation charge from the confirming bank. The LC is confirmed by another bank only when it is advised to do so by the issuing bank. Confirmation can be added only to irrevocable and not to the revocable credits.

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