One of the types of documentary letter of credit is a Standby Letter of Credit (SBLC).
Standby Letter of Credit is a written undertaking of the issuing bank to the beneficiary (exporter, supplier) to make payment for the applicant (importer, buyer) in the event that the latter's contractual obligations and the presentation of a written demand by the beneficiary of the payment.
Stand-by letter of credit is available to provide guarantee of performance of obligations of the issuer to a beneficiary.
SBLC is used primarily in the banking practice of Anglo-Saxon countries such as the U.S. and the UK, it is a good way to protect against the risk of no-payment, but the SBLC is not a mechanism of payment of delivery.
Stand-by SBLC Letter of Credit, as opposed to the guarantee (which, as a rule, subject to the laws of the issuing country), regulated by the Unique Rules for Documentary Credits UCP 500Uniform Customs and Practice for Documentary Credits, published by the International Chamber of Commerce and Industry, and the new version of the rules UCP 600.
Stand-by Letter of credit is issued for a period of 1 year and 1 day, but in many cases this period corresponds to the period of the contract or time of delivery of the contract) and may be terminated early (extended) on the base of the application by the issuer and with the consent of the beneficiary.
Stand-by Letter of Credit is available in addition to the contract for regular payments to the beneficiary and is transmitted to the system Swift via MT760.
Payments under the contract are carried out independently from the issue of instructing Stand-by Letter of Credit.
The advantages of order issuer:
1.Possibility of receiving of the goods without payment in advance;
2.Possibility of receiving of the goods with deferred payment;
3.Possibility of temporary use of the issuing bank of stand-by letter of credit in the event of a "guarantee" case and the failure to make a payment on time;
4.The guarantee by issuing bank letter of credit or a first-rate performance of obligations to the beneficiary by a foreign bank;
5.Possibility of early termination of the stand-by letter of credit in the case of execution of obligations to the beneficiary.
The advantages of the beneficiary:
1.Double guarantee of payment for the goods - from the issuing bank and the foreign bank;
2.Quickness of receiving of funds under a stand-by letter of credit in the event of non execution its contractual obligations by order issuer;
3.Possibility of shipment of goods until the payment with a 100% guarantee of payment for the goods.
Stand-by letter of credit is used in cases if one of the parties of the transaction wants to gain maximum assurance of contractual obligations by the other party.
Stand-by letters of credit give a 100 % guarantee of payment for goods (works, services) to the beneficiary.
The Beneficiary completely minimizes its risks and is ready to deliver the goods.
World practice shows a steady growth in popularity of stand-by letters of credit during calculations from foreign trade transactions.
Ease of use, transparency and availability of this type of international calculation take the relations with your foreign partners to a new level.