The Difference Between a Formal & a Silent Confirmation Letter of Credit

by Jennifer VanBaren - Updated September 26, 2017

A letter of credit, issued by a bank and obtained by a buyer, states that the bank will back up the payment if the buyer fails to do so. Formal and silent confirmation letters are types of letters of credit.

Confirmed Letter

A confirmed letter of credit is one issued by a foreign bank but guaranteed by a domestic bank. This letter guarantees the seller that if the buyer and the domestic bank default, the foreign bank will cover the payment.

Formal Letter

A formal confirmation letter of credit is the same as a confirmed letter of credit. The seller holds very little risk in making a sale to a customer who has obtained a formal confirmation letter. The only way the seller will not get paid is if the buyer, domestic bank and foreign bank all default on the payment.

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Silent Letter

A silent letter of confirmation is similar to a formal letter of credit. It also has the protection of a foreign bank backing up a domestic bank, but the domestic bank has the opportunity to negotiate terms and prices with the seller.

About the Author

Jennifer VanBaren started her professional online writing career in 2010. She taught college-level accounting, math and business classes for five years. Her writing highlights include publishing articles about music, business, gardening and home organization. She holds a Bachelor of Science in accounting and finance from St. Joseph's College in Rensselaer, Ind.

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