Articles

Standby Letter Of Credit And Its Advantages In Business Transactions

by Tom C. Self Employed, Content Writer
Today, most of the international trades happen through the letter of credit issued by banks of high reputation. This is actually a guarantee of payment made by an importer or a buyer’s bank with the bank of the exporter or seller as the case may be. It is not always possible to do business by giving payment in advance. The letter issued by the buyer’s bank guaranteeing payment is an irrevocable assurance that the exporter seller gets if he adheres to the terms of conditions like quality, quantity, documentation and shipping instructions. It will thus protect the buyer’s as well as seller’s interests. When a buyer is new to a foreign seller, latter will demand some kind of assurance for the payment of the goods sold by him to a new customer. In order to assure the exporter, a letter guaranteeing payment on delivery of goods as per the terms of agreement on quantity, quality, documentation and shipment instructions is issued by the bank of the buyer to the bank of the seller termed as advising bank. On receipt of a letter of credit or LC, advising bank acknowledges that it has received such a letter to the buyer without owning any responsibility. If the LC is a confirmed one, seller’s bank will authenticate the same after necessary checking. It will express its acceptance to be responsible for making payment to the seller by collecting the money from buyer’s bank on supply of goods as per the terms of instructions as agreed upon. By giving confirmation to LC, bank of the seller becomes equally responsible for making payment as per LC. standby letter of credit or SBLC, as it is popularly known, is issued by a bank to prove the creditworthiness of a buyer. It is issued by a bank on behalf of a client as last resort payment. If a client breaches his contractual obligation of payments to a third party, it will be the responsibility of the bank to make payments on behalf of the defaulting client. It is one of the most convenient and cost effective ways for providing financial protection to third parties. Standby letters of credit will support the personal and business transactions and it offers benefits over other types of financial guarantees. It will help to protect the interests of the client while increasing his ability to engage in business with third parties. Some of the advantages of SBLC are · Makes contractual agreements involving financial obligations credible. · Ensures higher flow of liquidity and cash flow. · It will give credibility to the client for making new business agreements. · A steady maintenance of capital for business and also for personal needs.

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About Tom C. Advanced   Self Employed, Content Writer

177 connections, 2 recommendations, 485 honor points.
Joined APSense since, March 7th, 2013, From London, United Kingdom.

Created on Dec 31st 1969 18:00. Viewed 0 times.

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