A confirmed Letter of Credit is a financial instrument used in international trade to provide security and assurance to both the exporter and importer. It acts as a guarantee of payment for the exporter and also safeguards the importer by guaranteeing the delivery of the specified merchandise.
What sets a confirmed LC apart is the involvement of two banks: the issuing bank and the confirming bank. The issuing bank, located in the importer’s country, initiates the LC and undertakes the responsibility of making payment. However, to enhance security, a confirming bank, usually located in the exporter’s country, adds its confirmation to the LC. This confirmation acts as a secondary guarantee1.