A letter of credit, also known as LC, is a financial instrument that is used by traders from all over the world to get payments on time and lower the financial risks of trading operations. Letter of credit can be of various types and each type of letter of credit have its own set of rules. Every type of letter of credit has its upsides and downsides and it is up to the traders to choose the one which is best for them. One of the most popular types of letters of credit is the Confirmed letter of credit. If you are involved in international trading and want to lower the risk and get paid on time then you should also consider opting for LC confirmation.
Other than the confirmed letter of credit, there is another popular type of letter of credit, which is the unconfirmed letter of credit. There are many financial institutions that provide both of these two types of letters of credit. If you are wondering if you should opt for LC confirmation or an unconfirmed letter of credit is the right option for you then you should read the following:
Secure: Both confirmed letter of credit and unconfirmed letter of credit provides security of payments and lowers the risk of any kind of default. But a confirmed letter of credit is considered to be more secure than an unconfirmed letter of credit. This is due to the reason that in a confirmed letter of credit, the payment is backed by a second financial institution. On the other hand, in an unconfirmed letter of credit, only one financial institution is involved.
Cost: Generally, the unconfirmed letter of credit costs less compared to a confirmed letter of credit. This is due to the reason that in an unconfirmed letter of credit, no secondary financial institution is involved and this means that there will be no secondary bank charges applied.
Hence, if you want a more secure letter of credit then a confirmed letter of credit will be the right option for you but if you want to get the letter of credit at a lower cost then you should choose an unconfirmed letter of credit.
