In an unconfirmed letter of credit, only the issuing bank, usually the buyer's bank, promises to pay the seller. A confirmed letter of credit adds a second bank, usually in the seller's country, which makes its own promise to pay for a complying presentation. Confirmation protects the seller against the issuing bank or its country failing to pay. It does not protect against documents that fail to comply, and it comes with an extra fee.
The question usually arrives as a line on a bank's fee schedule: why is there a charge to "confirm" a credit that already exists? The answer is that the seller is buying a second promise, and it helps to know exactly what that promise covers.
The banks in a letter of credit
A letter of credit usually involves up to three banks, and their roles are defined in law, not just in practice.
- The issuing bank issues the credit at the request of the buyer (the applicant) and is the party that undertakes to pay.
- The advising bank tells the seller (the beneficiary) that the credit has been issued. Under UCC section 5-102 (read 2026-09-11), an adviser is a person who notifies the beneficiary that a credit has been issued, confirmed or amended. Advising is not a promise to pay.
- The confirming bank adds its own undertaking. The UCC defines a confirmer as a nominated person who undertakes, at the request or with the consent of the issuer, to honor a presentation under a letter of credit issued by another.
The same bank is often both the advising bank and the confirming bank. The difference is whether it has only passed on the message or has also made a promise of its own.
For the basic flow of documents and payment in a single transaction, this site's explainer on how a letter of credit works covers the steps. This page is about the one decision that sits on top of that flow.
Confirmed vs unconfirmed letter of credit at a glance
| Unconfirmed letter of credit | Confirmed letter of credit | |
|---|---|---|
| Who promises to pay the seller | The issuing bank only | The issuing bank and the confirming bank, each separately |
| Where the seller presents documents | Usually through its own bank, which forwards them | To the confirming bank, which examines and pays if they comply |
| Risk of the issuing bank failing to pay | Carried by the seller | Carried by the confirming bank, for a complying presentation |
| Risk of the issuing bank's country blocking payment | Carried by the seller | Generally carried by the confirming bank, subject to the confirmation terms |
| Risk of documents not complying | Carried by the seller | Still carried by the seller |
| Extra cost | None for confirmation | A confirmation fee, set by the confirming bank |
What confirmation actually covers
The confirming bank's promise is its own. Once it confirms, the seller can present documents to it and be paid by it if they comply, without waiting to see whether the issuing bank abroad pays. The confirming bank then seeks reimbursement from the issuing bank.
That shifts two kinds of risk away from the seller.
Issuing bank risk. The seller may not know the buyer's bank, may doubt its ability to pay, or may simply prefer the credit of a bank in its own country.
Country risk. Even a sound bank can be prevented from paying by events in its country, such as foreign exchange restrictions or political disruption. A confirming bank outside that country takes on the risk of a complying presentation not being reimbursed.
The ITA's letter of credit page (read 2026-09-11) recommends letters of credit for higher-risk situations: where the importer's credit is unacceptable or unavailable, where the relationship is new, or where extended payment terms are requested. Confirmation is the next step up when the doubt extends from the buyer to the buyer's bank or country.
What confirmation does not cover
This is where most sellers are surprised.
It does not cover discrepancies. A confirming bank undertakes to pay for a complying presentation. If the documents do not match the credit's terms, the confirming bank has no obligation to pay, just as the issuing bank would have none. The ITA warns that letter of credit documents are detailed and prone to errors and discrepancies, and that risk sits with the seller whether or not the credit is confirmed. A confirmed credit with discrepant documents can leave the seller in the same position as an unconfirmed one.
It does not cover the goods or the buyer's satisfaction. Under UCC section 5-103(d) (read 2026-09-11), an issuer's rights and obligations toward the beneficiary are independent of whether the underlying contract was performed. Disputes about quality or quantity stay between buyer and seller.
It does not make a revocable credit safe. Under UCC section 5-106(a) (read 2026-09-11), a letter of credit is revocable only if it says so, and UCP 600 deals only with irrevocable credits. In practice, confirmation is added to irrevocable credits.
It does not always happen when requested. A bank decides whether to confirm based on its own view of the issuing bank and country, and it may decline or set limits.
Silent confirmation: a different thing with a similar name
Sometimes a seller's bank offers to "confirm" a credit that the issuing bank has not asked to be confirmed. This is often called silent confirmation.
The UCC definition matters here. A confirmer, in section 5-102, undertakes to honor "at the request or with the consent of the issuer." An arrangement made without that request or consent is a separate contract between the seller and its bank, and its terms, including when the bank pays and what it can recover, are set by that contract rather than by the credit. Whether a silent arrangement protects the seller in the way a true confirmation does is a question for the bank offering it and for the seller's attorney, answered in writing before shipment.
Who pays for confirmation
The confirmation fee is charged by the confirming bank. Which party bears it, the buyer or the seller, is a commercial term that the sales contract and the credit should state. If the credit is silent, the answer depends on its terms and the applicable rules, which is a reason to settle it before the credit is issued.
This page gives no fee figure. Confirmation is priced by each bank according to its view of the issuing bank, the country, the amount and the tenor, so a number from one deal says nothing reliable about another. The ITA's general point stands: letters of credit are relatively expensive because of bank fees, and confirmation adds to that.
When sellers tend to consider confirmation
Confirmation is one response to a specific risk, and whether it is worth its cost is a judgment for the seller and its bank. The situations in which the question usually comes up include:
- a buyer whose bank the seller cannot assess, or has not dealt with before
- an issuing bank in a country where the ITA, the seller's bank or the seller's export credit insurer flags transfer or political risk
- a large order relative to the seller's size, where one unpaid shipment would strain cash flow
- a credit with payment deferred for some time after shipment, extending the period of exposure
That third point weighs most heavily on small firms. A business financed through bootstrapping has already spent its own cash producing the goods, and it has no outside capital to absorb a payment that never arrives. Confirmation is one way of transferring part of that risk. Export credit insurance, described on the ITA's export credit insurance page (read 2026-09-11) as covering commercial and political risks of non-payment, is another, with its own costs and limits. Neither is a form of funding, and both sit apart from the types of startup funding a company uses to raise capital.
FAQ
What is the difference between a confirmed and an unconfirmed letter of credit? In an unconfirmed credit, only the issuing bank undertakes to pay. In a confirmed credit, a second bank adds its own undertaking to pay for a complying presentation, so the seller can look to that bank if the issuing bank or its country does not pay.
Does a confirmed letter of credit guarantee payment? It guarantees payment only for a complying presentation. If the documents do not match the credit's terms, neither the confirming bank nor the issuing bank is obliged to pay. Confirmation reduces bank and country risk, not document risk.
Is the advising bank the same as the confirming bank? It can be, but the roles differ. An advising bank tells the seller the credit exists and makes no promise to pay. A confirming bank undertakes to pay. A bank that only advises has not confirmed.
Can a seller confirm a letter of credit without the buyer's bank agreeing? A seller's bank may offer a "silent" arrangement, but under the UCC definition a confirmer acts at the request or with the consent of the issuing bank. A silent arrangement is a separate contract whose protection depends on its own terms, which the bank and the seller's attorney should set out in writing.
The short version
An unconfirmed letter of credit rests on one bank's promise. A confirmed letter of credit rests on two, and the second is usually a bank the seller knows, in a country it trusts. Confirmation moves issuing bank and country risk away from the seller for a fee. It leaves the risk of discrepant documents exactly where it was. This page explains the mechanism as the UCC and the ITA describe it; it is not legal or financial advice, and whether a particular credit should be confirmed is a question for the seller's bank and advisers.