Standby Letters of Credit
The standard L/C is the method used to pay for an export transaction. The standby L/C is used to secure the creditor in the event of non payment by the importer.
Standby's are often used when customers have being doing business for a period and want to avoid issuing L/C's for every shipment. The standby is usually issued for a fixed sum for a fixed period. While L/C's normally relate to international business we have secured domestic business using standby's. The exporter ships on open account terms and receives payment in the normal manner. However, should the payment process deteriorate or should an invoice remain unpaid the exporter can claim the value of the standby by presenting simple documentation to the bank.
The standby L/C can also be a good alternative when a credit limit is not available under credit insurance or where the exporter only needs a secured mechanism with a few customers.
This material has been provided courtesy
of Obrico Ltd Global Trade & Finance.
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