Confused between these two types of L/C’s

Board Topic: Stand-by L/C & Documentary L/C
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Stand-by L/C & Documentary L/C

Posted by: Nelson Dec 13 2004, 01:16 AM

I'm a little confused between these two types of L/C's. What are the differences between these two types of L/C? Could somebody explain?

Thank you


Posted by: loanuniverse Dec 15 2004, 10:10 PM
This is not my area, but my limited understanding is that:

Stand By LCs are used as safeguard in case that a party does not fulfill the obligations under a contract. Like say you are supposed to build a house, but the person that contracted you requires that you provide a standby in case that you do not finish by a certain time he can go and ask the bank for the money.

The documentary LC is used to support commerce, specifically with foreign countries and it is a way for exporters to get paid once they can provide the documentation indicating that the merchandise has been shipped or it has arrived. I guess documentary can apply to any transaction that produces documents that can be presented, but Standby lcs are usually on demand without the need to present anything other than a request for payment.

Remember I do not work in international finance


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