Standby remburs

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Like a DC and a bank guarantee, a standby letter of credit, is a very flexible instrument for all types of business. It can cover anything from an ordinary guarantee commitment to a more sophisticated financial instrument. It is normally used in order to secure the fulfillment of contractual obligations such as payment. 

When you and the buyer have agreed on the contract terms, you also need to define which of the terms are to be secured by a Standby Letter of Credit. If you have agreed to open a Standby Letter of Credit the buyer have to contact his bank and request the issuance of the Credit.

The Standby Letter of Credit comes in to practice when the buyer fails to fulfill his payment obligations, or to perform a job or meet some other commitment called for and stated in the commercial contract. The seller can then, on demand, present the stipulated documents stated in the Credit and the issuing bank are obligated to make the payment, provided all terms and conditions of the credit complies with credit.  

     

Benefits of a Standby Letter of Credit

  • You secure compensation for non-fulfillment of any important obligations
  • You secure payment
  • You can obtain advance payment
  • You can offer credit and/or obtain financing
  • You only need to present documents to the bank when your buyer has failed to fulfill his obligations, making it easier for you to administrate.