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.
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.
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.
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.
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.