The Standby Letter of Credit also known as Standby LC, SBLC or MT760. SBLC is a payment guarantee provided from a bank to their client. It is also a guarantee which needs to pay upon first demand without any protest or defense. Its use as “payment of last resort” if the client fails to oblige with the Terms and Conditions of the signed Agreement.
Standby Letters of Credit proves the buyer’s credit worth and payment strength. Moreover, it provides a complete security of not making any payment loss. Therefore, it is a preferable financial instrument by traders and is most reliable in business transactions.
Standby LC is often used in local and international trade transactions for buying goods. MT760 can also be used as Collateral for Credit Enhancement. Thus, it is ideal for companies planning to expand their business but without giving up their equity. Hence, it improves company’s cash flow. Also, it allows companies to use their funds for alternate purposes before payments become due.
Parties involve in Stand by Letter of Credit:
Applicant: The applicant means a commercial company who is requesting their bank an MT 760 guarantee. But they should have enough cash or credit facility available in their bank account to qualify their request. Further, the bank will debit applicant’s account in terms of instrument’s commission, processing fee and swift charges.
Issuing Bank:The issuing bank is a bank that will issue the SBLC – MT760 on behalf of their client as per their agreement with them.
Beneficiary: The beneficiary is a party in whose favor the MT 760 is issued.Advising Bank: The advising bank is, in fact, a beneficiary’s bank. This is the bank where the beneficiary company will receive their Standby Letters of Credit.
Advantages of Standby LC
It certainly effects on seller’s financial liquidity.
It is a most secure way to cover the financial risk of the seller while giving the credit to their clients.
By this financial instrument, the seller gets a full guarantee of their payment once they comply the terms of SBLC.
It also provides the confidence to the seller, if in case of any sudden bankruptcy to their client.
The seller can draw down the cash funding by pledging their MT 760 guarantee from their bank.
Can Stand by Letter of Credit be Transferable?
Standby LC can be transferable subject to its terms. This is a question that most of the clients ask to their bank before applying for the MT760. Other financial instruments like cheque, promissory note etc. can be transfer or assign in good faith of business and it has become a common practice also. Like other financial instruments, MT 760 can be transferred in favor of a second beneficiary only. However, it should be with the written instruction by the first beneficiary. And at the same time, with the consent of the issuing bank.
Being a SBLC provider, our experts will structure Standby LC to meet your business needs. Which surely will help you to protect your interests to the extent in every possible circumstance.
BANKGROUP CORPORATION has been providing Standby Letter of Credit – SBLC – MT760 on behalf of buyers to fulfill their contractual commitment towards the suppliers.
The Stand by Letter of Credit also known as Standby LC, SBLC or MT760. Standby LC is a payment guarantee provided from a bank to their client. It is also a guarantee which needs to pay upon first demand without any protest or defense. It is used as “payment of last resort” if the client fails to oblige with the Terms and Conditions of the signed Agreement.
Documentary LC also known as irrevocable LC, letters of credit, import LC or MT700. Irrevocable LC is a technique for financing global trade.
The traditional payment methods had failed for international trade and that’s when LC – MT700 was introduced. The financial institute carries out a safe transaction between importer & exporter by Import LC. In this way, the risk of non-payment goes down to zero percent. It’s not the importer who is then directly liable for the payments of their supplied goods. But at the same time, intermediate financial institute as well to secure an easy deal.
MT700 is a written undertaking which is given by a bank to the seller (beneficiary). Issuing bank provides irrevocable commitment at the request and for the account of its client (applicant) to pay exporter (beneficiary). After the handing-over of various documents complying with the terms of the credit. As well, proving the nature of goods specified in the pro-forma invoice or commercial contract within a set time limit.
The beneficiary of MT700 may also obtain from their bank a packing credit or borrow funds to mobilize their exports. Upon completion of the export of goods towards the buyer company. The beneficiary (Seller) will settle the advance funding by the proceeds of the supplied goods to their bank.
In general, there are three parties involve with letters of credit. First, it’s the beneficiary, the company who will receive the payment. Second, it’s the applicant or buyer who needs those goods and services. And third, the financial institute that will issue the LC – MT700. This is much like a financial institute who finance the transaction until the beneficiary receives full payment.
Not just the exporter, but the importer has also lots of benefits resulting from using letters of credit for their international trade.
Credit advantages for Exporter
The buyer can’t cancel or alter an order without the approval of seller. Hence, the production risk becomes zero.
The buyer’s bank has the obligation to pay for the shipped goods.
The buyer can’t refuse to pay for the supplied goods. Once the seller complies with the terms of credit.
The payments are also secured if the buyer is given a choice of deferred payments.
Credit advantages for Importer
The bank is liable for the payment of goods or services on a precondition. If the seller would provide all the documents required according to the terms of MT700.
The buyer through an LC is indeed proving their solvency.
In most cases, the buyer is able to control the shipping of goods.
If the seller provides an option for deferred payments. It simply means that the seller has granted a credit period to the buyer.
Prepayments become negligible with import LC.
As a direct provider, BANKGROUP COPORATION:
1. Instantly provides Transferable, Irrevocable LC at Sight. This MT700 is provided to the importers or traders who do not have sufficient facilities in their bank account to conclude their trade deal.
2. Ensure best quality of services with transparent and sound policies as guided by the above-mentioned details.