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Letters of Credit This confirmation means that the U.S. bank (the confirming bank) has added its promise to that of the foreign bank (the issuing bank) to pay the exporter. If a letter of credit is not confirmed, it is ?advised? through a U.S. bank, and thus the document is called an advised letter of credit.
Under a confirmed letter of credit, the advisory bank agrees to pay the exporter for the goods, even if the issuing bank ultimately fails to honour its obligations. An unconfirmed letter, in contrast, offers no express guarantee by the advisory bank. Letters of credit are usually unconfirmed.
(a) "Irrevocable letter of credit" (ILC), as used in this clause, means a written commitment by a federally insured financial institution to pay all or part of a stated amount of money, until the expiration date of the letter, upon presentation by the Government (the beneficiary) of a written demand therefor.
Banks will usually charge a fee for a letter of credit, which can be a percentage of the total credit that they are backing. The cost of a letter of credit will vary by bank and the size of the letter of credit. For example, the bank may charge 0.75% of the amount that it's guaranteeing.
An unconfirmed letter of credit transfers payment risk from the foreign buyer to the foreign buyer's bank (issuing bank). As a result, the U.S. exporter's risk of nonpayment lies solely with the issuing bank.
What Is a Confirmed Letter of Credit? The term confirmed letter of credit refers to an additional guarantee to an original letter of credit obtained by a borrower from a second bank. It guarantees that the second bank will pay the seller in a transaction if the first bank fails to do so.
So a confirmed letter of credit provides more security than an unconfirmed one. An unconfirmed letter of credit is one which has not been guaranteed or confirmed by any bank other than the bank that opened it.
Irrevocable LC at sight guarantees payment to the seller in return for the goods and services rendered by the seller. There's no significant difference in an LC or irrevocable LC at sight except that the latter is the quickest way to make the payment, i.e. within 5-10 days of meeting the requirements of the contract.