I read your page on standby letters of credit, but I am still confused can you give me more information.

Thanks, Ricardo

Well my knowledge of letters of credit is limited, but let me see what I can do.

In simple terms, a standby letter of credit is an assurance that your company has the financial resources to perform as agreed under contract - whether that is to provide products or services or to make payments for goods, supplies, loans or other indebtedness. The issuing Bank essentially substitutes its credit standing for that of your company in order to facilitate the trade transaction or contract.

Standby letters of credit are powerful tools that due to their relative lower cost are sometimes preferred over traditional guarantees like surety and performance bonds. Companies turn to banks for standby letters of credit to comply with payment or performance terms of a contract. . Standby letters of credit are legal documents that support contractual agreements between two parties. The standbys are concerned only with the contractual agreement you have made with another party and are payable only when the appropriate documentation as outlined in the letter of credit is presented by the beneficiary. At the same time, the letter of credit is flexible enough to be amended with the beneficiary's consent to reflect any changes in the contract agreement with the customer or supplier.

Some uses of standby letters of credit:

1 Replacement of Bid, Surety or Performance Bonds.

2 Substitution for Advance Payments and Cash Deposits.

3 Guarantee of loan repayments.

4 Utility company deposits

5 Invoice payment guarantee

6 Assurance of refund of advance payments if contract terms are unmet.


Hope this helps.

hi

i just read your reply on the SBLC (standby Letter of Credit);

COMMENTS from my buyer - He claims that to be worried abt his status with his SBLC, whereas the seller is confused by this worry as the money for the SBLC is still at the issuing bank...

Can you please explain why the buyer is worried, is there any bases for his worry....

URGENTLY NEED AN ANSWER..

thanks

ranie

email : rani1407@singnet.com.sg

Ranie:

My expertise is not international or trade financing, but I can see a couple of instances where the person relying on a letter of credit might be worried.

1- The LC might be issued by a shaky bank without confirmation by a stronger one.
2- You should confirm that the LC was issued.
3- There might be some language in the LC that might make it difficult to enforce.
4- The process of collecting means that the person relying would have to go through his bank.
5- There has to be enough time in the LC to collect.


That is just off the top of my head, I am sure someone with more experience in the area can give more insight. The person with the concerns should speak to his banker.