What is a Confirmed LC?

• A. A revocable LC
• B. A documentary collection
• C. An irrevocable LC guaranteed by a second bank (confirming bank)
• D. A standby Letter of Credit

Answer: (C)

A Confirmed LC is an irrevocable letter of credit that adds a second layer of guarantee: a confirming bank agrees to pay the seller despite the buyer’s bank or even the buyer’s ability to pay. In practice, the seller presents compliant documents to the issuing bank, and the confirming bank has its own obligation to pay once those documents meet the terms. This arrangement strengthens the seller’s payment security, which is especially valuable when dealing with higher country or counterparty risk, or when the seller wants assurance from a bank in its own country or a more trusted institution.

This differs from a revocable letter of credit, which can be changed or canceled by the issuer without the beneficiary’s consent, offering less reliability. It also differs from a documentary collection, which handles documents and payment through banks but without the independent, bank-to-bank payment guarantee. And it’s not a standby letter of credit, which functions more like a safety net to cover non-performance or default rather than serving as the standard method of payment for a shipment.