Current Articles

Standby letters of credit are established with the intention that they are not used by the recipient and have certain characteristics similar to a bail. Although, they do not bear any particular clause in which they indicate it.

Generally, in order for a Standby letter of credit to be made effective something has to go wrong in an international transaction. It works as a guarantee that protects both parties involved in the trade: importer and exporter. In the case that the conditions in the agreement were violated, the beneficiary of the Standby letter of credit will not be compensated because the bank will be notified not to give funds agreed to the company.

Standby letters of credit have characteristics that we discuss below:

Standby letters of credit work as a guarantee issued by a SWIFT message and/or authenticated telex. They must be issued by a bank of first order because the intervention of the bank is mandatory for Standby letters of credit.

Standby letters of credit require can be established from any place abroad. There is no limit as to the amounts, but these are subject to the availability of line of credit of the Issuing bank.

There are different kinds of Standby letters of credit: Irrevocable. Revocable, Revolving, and Transferable.

They can be paid in more than one way and the payment methods are varied: Documentary Credit, Advance payment, Documentary collection and Direct payment

Although Standby letters of credit bear certain similarities with regular Letters of credit, they have different requirements. Standby letters of credit must have bank intermediaries that provide security and availability of funds to support flawed transactions.

Let us now talk about the benefits of Standby letters of credit:

For one, they can reconcile conflicting interests between importing and exporting (buyer and seller). Additionally they are Internationally accepted mechanism for import operations or credit facilities.

Standby letters of credit are grounded at the core of laws and regulations that protect importers and exporters of bad interpretations. They make sure that commercial commitments are respected and followed.

Standby letters of credit allow the development of trade at international level. They are beneficial to the supplier in that it will receive payment of safety at a time and under the terms agreed in the guarantee.

Wade Henderson – recognized Professional – 15 yrs in the Business Finance Field – strong reputation for getting the deal done. IMMFinancial.com Trade Finance Bank Guarantee You are welcome to reprint this article – but get your own unique content version here.