How Obtaining Standby Letter Of Credit-Will Benefit Your Business?

 

If you have just now entered the importing or exporting business or wishing to improve your business then all you need is to know about the available financial instruments which will help you in growing your business. Especially, you have to know about the Standby Letter of Credit (SBLC) which is the best financial instrument that will help you in improving the business. Also, if you are still finding a way to so that you can keep your footprint in this business world, then you must use these financial instruments which will help you in many ways.

So, what is the SBLC? In general, the purpose of using the SBLC is that when an importer makes a deal to purchase goods from an exporter then, in turn, the importer must submit a letter of credit to the exporter as a guarantee for the payment. This guarantee can be obtained from the financial institution so that it acts as a guarantee from the issuer to the exporter that the payment will be done after the seller fulfills the terms outlined in the letter.

Where can one get the standby letter of credit?

 As mentioned earlier the SBLC services as the guarantee that the seller will pay for the goods or services as long as the seller meets the requirements as mentioned in the document. Here the standby letter of credit acts as the last resort. The seller can use the SBLC to get the amount involved in the transaction when the buyer for some reason wouldn’t pay the cost of the purchase. You can get this financial instrument from a number of financial institutions. 

Since nowadays more business individuals are involved in import and export business, all the financial institutions provide different types of financial instruments which will be beneficial for business people. So, how do the SBLC works? When the issuer applies for the financial instrument in the bank or any other financial institution, the bank will verify the client's application and ensure whether they are capable to fulfil the money requirement or not.

The issuer and seller will outline some terms which are necessary to be followed to expect the payment in the worst case. It includes the quality of the goods, delivering the goods on time, maintaining professionalism, and so on. If the seller fails to meet the standards mentioned in the document, then the seller cannot expect to get the payment since they have not followed the standards. But when the goods or services are delivered as per the terms outlined in the document, then the buyer or issuer of the standby letter of credit will make the payment on time.

Thus, the SBLC acts as a guarantee between the two unknown parties who are involved in the import and export business. This SBLC is not only extremely advantageous when making deals with an overseas partner but you can also use it to while making deals within your country to improve your business.