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    Understanding the Concept of Standby Letter of Credit

    Business owners who feel that their business has grown enough to be able to export goods or even import supplies should seriously consider the Standby letter of credit. Also widely referred to as SBLC, this letter of credit is irreversible assurance from a bank to compensate the beneficiary in case of debtor’s payment default. The design of SBLC is in line with the International Stand-By Rules and Practices (ISP98 establish).

    The SBLC serves as a bank guarantee used by exporters to ensure protection for a contract execution. Easier to implement and manage, SBLC serves as an adapted guarantee to be utilized for transactions or even specific procedures with known and regular commercial associates.
    Post expiration date, SBLC can be instantly cashed by the holder. Here, the exporter must produce the following documentation to verify that the transaction completed was different from whatever the letter establishes:

    - A copy of transport
    - A copy of the invoice
    - Certificate of non-payment

    Payment Transaction - One of the main uses of the letter of credit format as Standby Letter offered by SBLC provider companies is for payment on a transaction. The letter will compensate exporter once redeemed.

    Land Development - An SBLC can also be used for a land development project. It helps ensure final construction of approved public installations such as sidewalks, storm water system ponds, streets, etc.

    Organizations to a LC are mainly beneficiary who gets the money. The issuing bank of these organizations is a client.

    Banks deal only in goods or documents but do not involve themselves in the contracts and commitments between the two parties directly. Issuing bank is mainly concerned about the terms and conditions of the letter of credit. When it comes to paying by an SBLC, the decision is entirely based on whether the documents submitted to the bank appear to adhere to the terms of the LC.

    In case of a traditional LC, the beneficiary gets payment against papers representing delivery. On the other hand, the SBLC may facilitate a beneficiary to acquire payment from a financial institution despite the fact that the applier for the credit has ignored to do as per bond.
    Originally SBLC was used by the depository financial institutions in America. It is quite similar to a bank guarantee. Here, writing such a credit is aimed at securing bank loans. The applier’s bank usually cut SBLC instruments in the country of the applicant and apprise to a beneficiary of a bank in the beneficiary's country.

    Features of SBLC

    Flexible – These are flexible as the exporter and importer may not require a lot of paperwork to demonstrate commitment. The documentation saying that the transaction failed to comply with things established by letter will be shown to buyers by the exporter. Money transfer will be done only after things are clear.

    Affordable – Importer requires paying only issuing of fright and a commission towards the risks through the life of SBLC. Once the SBLC is confirmed, the seller will just pay for the validation. Here, the rate is fixed keeping in mind the quality of the bank issuing letter and risk of the country.

    Risk-Free - It promises peace of mind to users as it serves as a guarantee in the event things go wrong. It facilitates both importer and exporter to make continuous travels to resolve the situation.

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