Confirmed letter of credit
What is a confirmed letter of credit, and when does an exporter need one?
ONE OF 366 TERMS · FREE · NO SIGNUP
BY MICHAEL SHANG · SIXTEEN YEARS IN COMMERCIAL BANKING · UPDATED
// THE SHORT ANSWER
A confirmed letter of credit carries a second bank's undertaking, usually from a bank in the exporter's own country, to pay on a complying presentation, in addition to the issuing bank's. An exporter asks for confirmation when it doubts the issuing bank or its country: the confirming bank must pay on compliant documents even if the issuing bank fails or its country blocks payments abroad. The confirming bank takes that risk on its own limits for the issuing bank and country, and charges for it. Confirmation removes bank and country risk, not documentary risk: discrepant documents can still be refused.
BASIS Practitioner judgment from sixteen years in commercial banking, set out in How Bankers Think (Highbank Press, 2026). Every borrower on this site is a composite constructed for teaching, not a client. The market is mid-market commercial lending as practised in New Zealand and Australia; where a convention differs elsewhere, the page says so.
// WORKED IN
// NEXT TO IT
- Borrowing base
- Dilution (receivables)
- Advance rate
- Eligible receivables
- Concentration limit
- Recourse (receivables finance)
- Invoice discounting
- Trade credit insurance
- Performance bond
- Standby letter of credit (SBLC)
- Documentary collection
- Letter of credit (LC)
- Sub-limit
- Open account
- Discrepancy (letter of credit)
- Documents against acceptance (D/A)
- Early settlement discount
- Aged debtors report
- Collection account
- Availability (borrowing base)
- Usance letter of credit
- Cross-ageing
- Trust receipt
- On-demand guarantee
- Virtual accounts
- Borrowing base certificate
- Selective invoice finance (spot factoring)
- Contra debtor (contra)
- Progress claim (payment claim)
- Supply chain finance (reverse factoring)
- Dynamic discounting
- Slow-moving stock
- Unapplied cash (unallocated receipts)
- Banker's acceptance
- Red clause letter of credit
- Back-to-back letter of credit
- Transferable letter of credit
- Shipping guarantee
- Bill of lading (B/L)
- Incoterms
- Pre-shipment finance (packing credit)
- Post-shipment finance
- Forfaiting
- Aval
- Export credit agency cover (ECA cover)
- Advance payment guarantee (APG)
- Bid bond (tender guarantee)
- Counter-guarantee
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