2. What is LC Confirmation?
• In any trade, whether domestic or international, there are various methods of payments. The
methods of payments include, Advance payments, Documentary collections, Letter of credits
and BankGuarantees.
• The letter of credit, also known as documentary credit, is an instrument that serves to
mitigate the risks inherent to any trade, particularly in the international trade, both on the
buyer’s and the seller’s side. It still is the most effective and commonly used instrument to
secure international as well as domestic commercial transactions.
• A documentary credit represents a bank’s contractual commitment to pay on behalf of the
applicant (buyer), within a fixed period of time, in favors of the beneficiary (seller), upon
presentation of exactly prescribed documents which must satisfy the requirements of the
documentary credit.
• A Letter of Credit is a written instrument issued by a bank, at the request of its customer - the
Importer (Buyer), whereby the bank promises to pay the Exporter (Beneficiary) for goods or
services, provided that the Exporter presents all documents called for, exactly as stipulated in
the Letter of Credit, and meet all other terms and conditions set out in the Letter of Credit. A
Letter of Credit is also commonly referred to as a Documentary Credit.
3.
4. Function, Process and Features
• Functions: Enterprise the credit risks of the problem bank for the exporter so on
facilitate exporter receive payments before upon obliging presentation; it are usually
divided into a pair of forms: open confirmation and silent confirmation.
• Features: Reduction of risks and acceleration of the capital turnover: Confirmation of
L/C can facilitate exporters stop the risks from the problem bank, the country risk of
issue company and conjointly the exchange management risks. Double guarantee:
except the conditional payment enterprise created by the problem bank, the
exporters can get further conditional payment enterprise from business consultants,
swing the exporters below double payment guarantee. Payment guarantee: The
exporter upon that matches the LC Confirmation wants and approval of the firm can
gain the non-recourse payments or payments guarantees.
5. • Process: Banks provides revolt upon the request of the problem beneficiary once
advising the LC; LC Confirmation the exporter presents the obliging documents to
Bank makes non-recourse payments or irreversible payments guarantees to the
exporter once examination and approval; organization mails the documents to the
foreign issue bank to mention compensation and might ensure the payment once the
foreign payment received
• LC Confirmation may be a well established trade finance instrument. A confirming
bank, typically within the beneficiary’s country, provides a guarantee of payment on
maturity date on high of the L/C supplying bank’s own commitment to pay the
businessperson. Our dedicated employees are a unit each knowledgeable and well
intimate with in providing you'll the most effective attainable service during this
space.
6. • Only irrevocable letters of credit can be confirmed.
• During the issuance phase of a letter of credit, the issuing bank should "authorize or
request" the potential confirming bank to add its confirmation to the letter of credit.
• No bank can be forced to add its confirmation to any letter of credit.
• If a bank is authorized or requested by the issuing bank to confirm a credit but is not
prepared to do so, it must inform the issuing bank without delay and may advise the
credit without confirmation.
• Confirming a letter of credit does not mean that confirming bank is obligated to
confirm any subsequent amendment or amendments.
• A confirming bank is irrevocably bound to honors or negotiate as of the time it adds
its confirmation to the letter of credit.
