What is stand by letter of credit

If you want to know what is stand by letter of credit then we mentioned a complete details as a Stand by letter of credit, abbreviated as standby letter of credit, refers to a legal document where a bank guarantees payment of a particular amount to the seller if the purchaser defaults on the contract. A standby letter of credit work as a security net for the shipment of physical commodities or payment of full service to the seller, in the event that something unforeseen prevents the purchaser from making the scheduled payment to the seller. In such a situation, the standby letter of credit makes sure that the necessary payments are made to the seller after completion of the necessary obligations. A standby letter of credit is utilized in domestic or international transactions where the buyer and the seller don’t know each other, and it seeks to reduce the hazards include bankruptcy and insufficient cash flow on the buyer’s side.