LC confirmation - Should You Go For It?

Letter of credit is an important financial instrument that is being used by trading businesses all over the world. With the help of a letter of credit, a trading business can decrease the financial risks involved with international trading. You see, international trading involves various kinds of financial risks that can lead to financial losses for trading businesses. But with the help of a letter of credit, the trading business can run its day-to-day operations smoothly. If you are involved in trading businesses then you should consider opting for a letter of credit.

In recent times, plenty of trading businesses are opting for LC confirmation. If you do not know what a confirmed letter of credit is and are wondering whether you should also consider opting for a confirmed letter of credit or not then you should read ahead.

A letter of credit guarantees the payment that a seller is entitled to receive from the buyer. In case the buyer fails to make the payment, a financial institution like a bank will make the payment to the seller in time. However, in case the bank also fails to make the payment then it can be very problematic. 

But with LC confirmation, even if the bank fails to make the payment, it does not create much problem. This is due to the reason that in the confirmed letter of credit, the payment is backed by a second bank, also known as the confirming bank. Hence, if a trading business opts for the confirmed letter of credit then it will be able to make the trading operation even more secure financially. 

The cost of a confirmed letter of credit is generally higher than the cost of a standard letter of credit. The process of getting a confirmed letter of credit is much more complex compared to a standard letter of credit.