Professional Post. Prepared September 2025. Documentary credits reference UCP 600. Standbys often reference ISP98. Reimbursement may reference URR 725.
Confirmed vs Unconfirmed Letters of Credit
Two options for sellers: rely on the issuing bank alone, or add a confirming bank’s independent undertaking. The choice shifts risk, pricing, and how quickly you can convert documents into cash.
Unconfirmed LC
The advising bank authenticates and forwards the LC. Payment rests with the issuing bank and its jurisdiction.
Confirmed LC
A confirming bank adds its own undertaking. If documents comply, it must pay—even if the issuer cannot.
Why It Matters
Confirmation reduces issuer/country risk for the seller and usually improves discounting terms.
Rules in Play
Commercial LCs: UCP 600. Standbys: ISP98(or UCP 600). Reimbursement: URR 725 as applicable.
Risks and Mechanics
| Topic | Unconfirmed LC | Confirmed LC |
|---|---|---|
| Payment Undertaking | Issuing bank only. | Issuing bank + confirming bank. |
| Country/Transfer Risk | Seller carries it. | Shifted to confirmer’s jurisdiction. |
| Document Checking | Advising/issuing bank. | Confirmer checks; pays if compliant. |
| Discounting | Priced off issuer/country risk. | Priced off confirmer; usually tighter. |
| Availability | Broad; lowest cost. | Limit- and country-driven. |
| Failure Modes | Issuer default, FX controls, sanctions. | Confirmer still pays if clean; fraud/sanctions can block. |
In all cases, clean documents govern payment.
When to Add Confirmation
Issuer or Country Risk
Weak issuer rating, capital controls, or a slow reimbursement history.
Discounting Requirement
Usance LCs that need immediate liquidity on a strong name.
Contractual Certainty
Sales terms require a confirmed LC to ship or release goods.
Control Checklist
LC Text
Incoterm, latest shipment, presentation period, partials/transshipment, place of expiry—coherent and workable.
Documents
Invoice, transport, inspection/COI, packing list, COO, insurance per Incoterm. No contradictions across fields.
Reimbursement & Fees
Reimbursing bank named where used (URR 725). State who pays confirmation, discount and advising charges in 71B.
Execution Process
1) Contract & Application
Confirm need for confirmation in the sales terms and LC application.
2) Draft Review
Mark up availability, rules, document list, tolerances, dates and reimbursement path.
3) Add Confirmation
Advising bank adds confirmation if limits permit; otherwise switch banks or adjust structure.
4) Present & Pay
Ship, present a clean set, cure minor points quickly, receive funds or discount.
FAQs
Who selects the confirming bank?
Often the advising bank, if it has limits. Sellers can nominate a preferred confirmer in the sales contract.
Can every LC be confirmed?
No. Availability depends on limits, country risk, sanctions and issuer profile. Alternatives include changing the issuing bank or structure.
Does confirmation remove the need for clean documents?
No. Compliance still governs payment. Discrepancies create delays and costs.
Is UPAS better confirmed?
Usually. It enables sight payment to the seller and cleaner discounting on the confirmer’s name.
When is unconfirmed acceptable?
Strong issuer and country, tight wording, and no need to discount. Otherwise, confirmation is prudent.
Need LC Confirmation or Discounting
Send the draft LC and trade pack. We will review wording, line up a confirmer where available, and set a reimbursement path that pays on time.
Start NowDisclaimer. Guidance only. Final terms depend on bank policy, sanctions/KYC outcomes, exact LC wording and logistics.
