How a Confirmed LC Works: Step-by-Step with Risk Explanation
Many sellers believe an LC guarantees payment… but what if the issuing bank fails or payment is blocked?
This is where Confirmed LC becomes critical
WHAT IS CONFIRMED LC?
A Confirmed LC is an LC where a second bank (Confirming Bank)
adds its own payment guarantee on top of the Issuing Bank.
- Two banks involved
- Double layer protection
ACTUAL FLOW (STEP BY STEP)
STEP 1 – Contract Agreement (SPA)
Buyer & Seller agree:
- Payment via Confirmed LC
- Confirming Bank to be added
STEP 2 – Buyer Applies for LC
Buyer submits to Issuing Bank
Required:
- SPA
- Proforma Invoice
- Company documents
- Financial documents
STEP 3 – Bank Due Diligence
Issuing Bank:
- KYC / AML checks
- Credit assessment
- Collateral / facility approval
STEP 4 – DRAFT LC (MT700 DRAFT)
Issuing Bank prepares draft
Buyer sends to Seller for review
STEP 5 – Seller Requests Confirmation
Seller ensures:
- LC will be confirmed
- Confirming Bank is acceptable
STEP 6 – FINAL LC ISSUANCE (MT700)
Issuing Bank sends MT700 via SWIFT to Advising Bank (Bank Receiver LC)
STEP 7 – CONFIRMATION ADDED
Confirming Bank:
- Verifies LC
- Adds its own payment guarantee
Note: LC now becomes Confirmed LC
STEP 8 – SHIPMENT
Seller:
- Ships goods
- Prepares documents
STEP 9 – DOCUMENT SUBMISSION
Seller submits documents
Bank checks compliance
STEP 10 – PAYMENT
If documents compliant:
Confirming Bank pays Seller
Even if Issuing Bank fails
WHAT HAPPENS WITHOUT CONFIRMATION?
Issuing Bank may not transfer funds
Payment can be delayed or blocked
Due to:
WITH CONFIRMED LC
Confirming Bank (seller country / neutral):
Pays the seller
Independent from buyer’s country system
WHO ACTUALLY PAYS (REAL FLOW)
Even if Issuing Bank fails
WHAT HAPPENS WITHOUT CONFIRMATION?
Issuing Bank may not transfer funds
Payment can be delayed or blocked
Due to:
- Banking restrictions
- Currency control
- Country risk
WITH CONFIRMED LC
Confirming Bank (seller country / neutral):
Pays the seller
Independent from buyer’s country system
WHO ACTUALLY PAYS (REAL FLOW)
Confirming Bank pays Seller
Confirming Bank claims from Issuing Bank
Issuing Bank claims from Buyer
SIMPLE EXPLANATION
Without confirmation:
Seller depends on buyer’s bank + country
With confirmation:
Seller depends on a stronger / trusted bank
IMPORTANT (DO NOT MISUNDERSTAND)
Confirmed LC is NOT 100% risk-free
Still depends on:
KEY INSIGHT
“A Confirmed LC shifts the risk… from the buyer’s bank and country to a stronger and more reliable bank.”
CONCLUSION
Note: That’s why Confirmed LC = premium protection
Need help reviewing LC or structuring Confirmed LC? Feel free to reach out.
Confirming Bank claims from Issuing Bank
Issuing Bank claims from Buyer
SIMPLE EXPLANATION
Without confirmation:
Seller depends on buyer’s bank + country
With confirmation:
Seller depends on a stronger / trusted bank
IMPORTANT (DO NOT MISUNDERSTAND)
Confirmed LC is NOT 100% risk-free
Still depends on:
- Document compliance
- LC wording
KEY INSIGHT
“A Confirmed LC shifts the risk… from the buyer’s bank and country to a stronger and more reliable bank.”
CONCLUSION
- Issuing Bank risk → taken over by Confirming Bank
- Country risk → significantly reduced
Note: That’s why Confirmed LC = premium protection
Need help reviewing LC or structuring Confirmed LC? Feel free to reach out.
CONTACT US FOR ASSISTANCE:
WhatsApp:
IR. Zaki
(Mr. Saif)
(Ms. Nur)
Email:
gngroup.sb@gmail.com
sales.gngroupsb@gmail.com
Website: