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Standby Letter Of Credit Vs Letter Of Credit. A standby letter of credit is a bank’s undertaking of fulfilling the applicant’s obligations. When a standby letter of credit is used, the seller may not have to submit all documentation to receive payment, and a mere request for payment should ensure that the funds are transferred from buyer’s bank (issuing bank) to the seller’s bank.
Letters of credit are used extensively in the financing of international trade, when the reliability of contracting parties cannot be readily and easily determined. Even though, both lc mt700 and sblc mt760 used to ensure the fiscal safety between the buyer and the seller; However, a standby letter of credit is a standby payment mode that can only be used by the beneficiary when the purchaser fails to make the payment for any reason.
“ evergreen clause ” is an ongoing standby letter of credit in which the expiration of the standby letter of credit is automatically extended (often at the end of each year of its expiration) for another term ie 12months.
A standby letter of credit is used in an international transaction but it is also frequently used in domestic transactions as well. Thus, while compensation is more easily recovered through a letter of. However, a standby letter of credit is a standby payment mode that can only be used by the beneficiary when the purchaser fails to make the payment for any reason. The former usually has a valid term of around 3 months and the latter has a.