Advantages Of Standby Letters Of Credit

When your business is grown to the point to be able to export goods or import supplies from others you need to be introduced to a useful tool: the Standby letter of credit, also known as SBLC.

The standby letter of credit or SBLC is the irrevocable commitment of the bank to compensate the beneficiary in the event of default of payment of the debtor. SBLC are designed according to what the International Stand-By Rules And Practices or ISP98 establish.




SBLC guarantee the exporter to receive payment for the merchandise if the importer does not comply with its responsibility. SBLC are attractive for exporters not only because of what was stated before but also because of its easy way to use and manage. However, it is mostly recommended for transactions between commercial partners that have already worked together in repeated occasions.

When SBLC have past their expiration date, they can be cashed immediately by the holder. The exporter will have to show the documentation that proves that the transaction was done different from what the letter establishes (a copy of the invoice, one of transport, certificate of non-payment, etc)

Let us now mention some of the characteristics of SBLC

It is simple, the seller guarantees provided that its own commitments, and credibility to the buyer.

It is flexible: The seller transmits directly to the buyer the documents required while the buyer continues to keep the right for the merchandise, to the extent that the commercial contract allows it. The payment may be effectuated by transfers, after the documents have been sent to the importer and which will result in time gained because of the formalities of clearance.

Affordable. The responsibilities of the buyer in terms of payment are not high. The importer will pay only a commission for fright for as long as the SBLC is valid. Once the seller has proven that something went wrong, he or she will only pay for the confirmation of these documents. The level of risk of the country and the quality of the issuing bank are also considered.

It's a guarantee, not intended to be applied and it allow the coverage of successive expeditions if the terms of payment permit it.

For SBLC to be exercised, the exporter needs to show copies of invoices of transport, certificates of non-payment and others.



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