The standby letter of credit serves a different function than the commercial letter of credit. The commercial letter of credit is the primary payment mechanism for a transaction. The standby letter of credit serves as a secondary payment mechanism. A bank will issue a standby letter of credit on behalf of a customer to provide assurances of his ability to perform under the terms of a contract between the beneficiary. The parties involved with the transaction do not expect that the letter of credit will ever be drawn upon.
The standby letter of credit assures the beneficiary of the performance of the customer's obligation. The beneficiary is able to draw under the credit by presenting a draft, copies of invoices, with evidence that the customer has not performed its obligation. The bank is obligated to make payment if the documents presented comply with the terms of the letter of credit.
Standby letters of credit are issued by banks to stand behind monetary obligations, to insure the refund of advance payment, to support performance and bid obligations, and to insure the completion of a sales contract. The credit has an expiration date.
The standby letter of credit is often used to guarantee performance or to strengthen the credit worthiness of a customer. In the above example, the letter of credit is issued by the bank and held by the supplier. The customer is provided open account terms. If payments are made in accordance with the suppliers' terms, the letter of credit would not be drawn on. The seller pursues the customer for payment directly. If the customer is unable to pay, the seller presents a draft and copies of invoices to the bank for payment.
The domestic standby letter of credit is governed by the Uniform Commercial Code. Under these provisions, the bank is given until the close of the third banking day after receipt of the documents to honor the draft.
The SBLC is avlailable during the contract + 1-2 months
Monthly payment - TT Bank to Bank
Quoting from [FabricioBkk]:
iulianap: Thanks for the reply. I prefer asking somebody rather than "googleing" it as it will be a more precise answer.
"googleing" was because my english is not very good.
SBLC cover one month value and is available for the lenght of the contract +1-2 months.Is not really a payment - can be considered a guarantee.The payment is carried out via Swift Wire System (TT ) after the seller have deposit the shipping documents at Buyer's bank.The SBLC can be drawn in case the Buyer is behind schedule with complete or part payments arising from the Contract.In this case the seller have the right to draw on the SBLC to balance the oitstanding payments and all other expenses that result from the loading /unloading of all goods that are in process.
The bank of the Seller is obliged to give bank the SBLC after expiry date and last payment is done.
Advantages? For the Seller,yes,because he is sure that he will get his money.For the Buyer ......NO because he block his money for a long time
Quoting from [FabricioBkk]:
Replying to [iulianap]: I see, thank you for taking your time. I see what I can do with this.
Good luck .
Hello, my name is Andreos Vargas, i would like to know if non-operative SBLC can be done... I ask it becouse my seller work this this term, but i dont know if there is. If ok with this payment term is possible i get a draft of this?