Why should you go for an LC confirmation?

 

While running an exporting business, people have to face a lot of logistical challenges. One of the most common and very serious logistical challenges that almost every exporting business faces are having a constant flow of capital. Exporting is a very costly process and requires a lot of capital to run the business. Hence, while exporting goods from one place to another, if the buyer defaults and fails to pay the money in time then as a result, the entire exporting process could halt due to a lack of money. For this reason, a lot of exporters relies upon the letter of credit which can supply money in case the buyer default and fails to pay the money in time. And one of the best options for getting a letter of credit is applying for an LC confirmation. 

In a letter of credit, a third-party financial institution guarantees the payment of money to the seller in case the buyer defaults and fail to make the payment in time. As a result, the exporter does not have to face any kind of money crunch and can run their exporting business smoothly. 

However, in case the financial institution also defaults and fails to make the payment, then the exporter will have to face the same problem and the export of goods will have to be halted. However, to avoid such a condition, you can apply for an LC confirmation which will make the payment more secure. 

If you apply for a confirmed letter of credit, then a second financial institution will guarantee the payment of the money in case the first financial institution fails to make the payment in time. Hence, a confirmed letter of credit provides a double guarantee of payment and you can be more assured of receiving the payment even if both the seller and the first financial institution fail to make the payment. By getting a confirmed letter of credit, the risk of default drops considerably and both the buyer and seller will feel more relieved knowing that their interests will be protected by the confirmed letter of credit.