LC Confirmation has the advantage
that the payment obligation of the confirming bank is freelance of the supply
bank. Consumers might get injunctions against the supply bank in their home
country to stop the bank from compliance the LC. Getting associate injunction
in an exceedingly foreign country is harder.
Silent LC confirmation is taking
risk by a bank in export country towards a bank supply a documentary credit
situated in import country. Usually a confirmation is requested between the
documentary credit terms, in Swift MT 700 in field forty nine by indicating
make sure or might ADD. Some bank and a few Countries forbade confirmation, by
political, legal spiritual grounds. During this case the bourgeois can raise a
bank in his Country to require a risk by silent confirmation. The documentary
credit are going to be handled sometimes, however the bourgeois are going to be
guaranteed to get the return, naturally against compliant documents.
The documentary credit
beneficiary has another opportunity; the appointed bank may notice another bank
that insures the bank and therefore the Country against economic condition.
This bank can "protect" and can intervene just in case of bank or
Country default. This can be a DEL CREDERE cowl. Distinction from silent
confirmation is that the appointed bank can act sometimes, by giving notice
that everyone is ok.
LC Confirmation, customary
Example:
1) vendee and marketer sign a
procurement contract that stipulates payment by letter of credit. it's smart
follow to agree already within the contract that documents the
Seller/Beneficiary needs to gift.
2) The Buyer/Applicant goes to
his bank (so known as issue bank) gap the credit to the good thing about the
vendor, specially the client tells his bank that documents the Beneficiary
needs to gift, wherever and the way, and therefore the quantity of the credit
and details of payment (by sight, postponed sight payment, against acceptance
or negotiation of drafts).
3) The issue Bank that is often
situated in a very foreign country advises the Beneficiary through a
correspondence bank situated within the country of the Beneficiary of the
credit. Therefore in step # three, the issue Bank problems the L/C and forwards
it to the Advising Bank.
4. The Advising Bank checks the
apparent believability of the L/C and advises the L/C to the Beneficiary
5) The Seller/Beneficiary checks
if the L/C complies with the industrial agreements and if all terms and
conditions per the L/C are often happy, then the vendor ships the products
6) The Beneficiary assembles the
documents per the L/C Confirmation, checks the documents for discrepancies with
the L/C, attracts the draft and presents the draft and therefore the documents
to the Advising Bank and presents the required documents to his native bank
that pays him once examining them.
7) The Advising Bank bears the draft and
therefore the documents against terms and conditions of the L/C and forwards
them to the issue Bank
8. The issue Bank checks if the documents
accommodate the L/C and makes a payment forthwith (if the L/C is offered by
sight) or on an exact date (if L/C is offered by postponed payment).
