An irrevocable unconfirmed documentary credit constitutes a firm commitment on the part of the issuing bank.
It takes the place of the buyer and, in its own name, guarantees the seller that the buyer's obligations as stated in the documentary credit will be duly fulfilled.
The commitment is valid until the expiry date of the credit, on condition that the terms of the credit are respected.

From the moment it opens the documentary credit in favour of the buyer, the issuing bank is bound to perform the promised service. It is obliged to respect its undertaking if the exporter presents documents which duly comply with the terms of the credit within the stipulated deadline.

The position of the various parties involved can be summed up as follows:
1. the applicant enters into an irrevocable commitment
2. so does the issuing bank
3. the advising bank does not enter into any commitment
4. the beneficiary's only guarantee is the issuing bank's commitment.

 

A seller is exposed to risks outside his own country : political events, liquidity problems of the foreign bank, economic crisis...
When the seller wants to cover these risks, he can ask his own bank to confirm the documentary credit. Usually his own bank will also have been appointed advising bank, although the advising bank may be different from the confirming bank.
With a confirmed irrevocable documentary credit, the issuing bank and the confirming bank enter into the same undertaking towards the seller. The beneficiary of the credit is consequently covered by two definite undertakings for one and the same transaction.

Certain banks, acting at the seller's request and without the issuing bank's knowledge, enter into a parallel undertaking - called "silent confirmation". It is nothing more than a guarantee, given by the advising bank or a third-party bank, to the effect that the services specified in the credit will be duly performed.