Stand Alone Letters Of Credit

The letter of credit and the standby letter of credit are two legal bank documents that are used by international traders.

Stand alone letters of credit.

A letter of credit lc also known as a documentary credit or bankers commercial credit or letter of undertaking lou is a payment mechanism used in international trade to provide an economic guarantee from a creditworthy bank to an exporter of goods. This is the customer of the bank who applies to the bank for the standby letter of credit. And sblc is a type of lc that is used when there is a contingent upon the performance of the buyer and this letter is available with the seller to prove. Bank letters of credit l cs have been used in commerce since medieval times.

Before issuing the letter the bank typically evaluates the buyer s credit and determines that the business will repay the bank. However a standby letter of credit is a standby payment mode that can only be used by the beneficiary when the purchaser fails to make the payment for any reason. An exporter sells goods to a foreign buyer who promises to pay within 60 days if the payment never arrives the exporter can collect payment from the foreign buyer s bank per the terms of the sblc. Such restricted cash consists of the cash deposit we are required to pledge as collateral under the existing stand alone letter of credit facility in an amount equal to 103 of the amount of outstanding letters of credit and with respect to the amount as of november 2 2014 also includes 10 0 million we deposited into an escrow as a source.

Both these letters are used to ensure the financial safety between the supplier and their buyers. Each has a distinct purpose but both types were created to assure the parties in a commercial transaction that contractual obligations will be honored. They come in two basic types commercial also called documentary and stand by. A standby letter of credit is a bank s commitment of payment to a third party in the event that the bank s client defaults on an agreement.

Standby letter of credit vs. A letter of credit is a credit document used to make payment to the beneficiary upon the fulfillment of contractual obligations. He also must pay the bank a fee for issuing the instrument. Letters of credit are used extensively in the financing of international trade where the reliability of contracting parties cannot be.