Thursday, 30 March 2017

How Does SBLC Work?


When you are doing a business or you are involved in any big investments, anything can go wrong with the finance and it is very important for you to have a backup plan. The Standby letter of credit is one of the best back up plan you can have for yourself. It can provide you protection whether you are purchasing a completed service or shipping physical goods.

SBLC is one basically a document that is issued by the bank and the letter saves you. You can get the guarantee from the bank saying they will be paying the beneficiary amount if anything goes wrong with your finances.

These can be used both in domestic trades as well as international trades. The SLBC helps you to pay the beneficiary amount when you are unable to make the payment on time, or complete the project on time, or you are unable to satisfy any of the terms and conditions of the agreement.

What are the types of the SBLC?

There are a lot of types of SBLC. These are –

1.    Performance Standby – This standby letter of credit provides an obligation to perform and not to pay the money on behalf. For instance, you are unable to complete the task, your bank will do the task on behalf of you rather than paying money in order to cover the losses.

2.    Advance Payment Standby – This SBLC supports an obligation to account for an advance payment made by the beneficiary to the applicant. This basically helps you as the bank already makes an advance payment on your behalf as SBLC letter of credit.

3.    Tender standby/Bid Bond – If the applicant is awarded a bid, this SBLC is obligated to execute a contract.

4.    Counter standby – This is another form of SBLC which favors the issue of another standby or a separate undertaking by the beneficiary of the counter standby.

5.    Direct Pay Standby – The SBLC is used to pay directly when to an obligation where the only possible condition of payment is or are the passage of the terms and conditions available on the contract.

6.    Insurance Standby – This standby basically is an insurance or a reinsurance obligation to the applicant.

7.    Commercial Standby – Commercial SBLC is one of the most used standbys as it supports the obligations of an applicant to pay for goods or services in the event of non-payment by a business debtor.

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