Axios Credit Bank Ltd

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Key Differences Between A Letter Of Credit & Standby LC

Letter of credit (LC) & Standby Letter of credit (SBLC) are both the most popular, & reliable trade finance instruments used by global importers & exporters in international trade to reduce the risk of payment failure & to ensure financial stability.

A Letter of credit is a primary method of payment, while Standby LC is used when there’s a risk of buyer’s non-performance during a transaction. So, what is the difference between an LC and SBLC? Let’s check out:

Letter of Credit Vs Standby Letter of Credit

Both the letter of credit (LC), and the Standby letter of credit (SBLC) are payment guarantee instruments used in international trade. In this article, we’ve discussed the key differences and usage between LC and SBLC. Take a look:

What is a Letter of Credit?

Under a letter of credit service, the issuing bank guarantees an on-time & full-fledged payment to an exporter on behalf of its client ie. importer for the ordered goods or services. But in the event, if the importer defaults in payment or is unable to fulfill the terms & conditions of the LC contract, then, the issuing bank will compensate the beneficiary ie. the exporter.

The role of the issuing bank is to make sure that the buyer pays on time and the agreement goes as planned catering to all the T&Cs being followed by both parties.

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#letterofcreditservice #standbylc #letterofcredit #differences #tradefinanceinstruments #standbylcagreement

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Top Most Asked Questions About Letters of Credit

If you’re an importer/exporter dealing in international trade, “letter of credit” is a term you encounter often. It is one of the most trusted trade finance instruments to mitigate risks in global trade transactions. Yet, the term can be confusing for many people, especially those who are seeking secure means of payment in overseas dealings.

This article discusses some of the most common FAQs you have regarding a letter of credit service. Check out here:

1. What is a Letter of Credit?

The most popular trade finance instrument, letters of credit are the legal documents issued by the buyer’s/importer’s bank in favor of the overseas exporter/seller, guaranteeing an on-time & full-fledged payment for the ordered goods & services. However, if a buyer/importer fails to comply with the terms and conditions or is unable to pay the amount, the issuing bank will pay the exporter instead.

2. How does a Letter of Credit service work?

1. At first, the applicant or buyer/importer must approach an issuing bank to issue an LC in favor of the exporter.
2. Then, the advisory bank (exporter’s bank) receives the letter of credit and further forwards it to the seller after verifying the authenticity and legalities.
3. The seller ships the ordered goods as per the LC agreement and receives a bill of lading as proof of shipped goods.
4. Now, the seller presents the bill of lading to the nominated or negotiating bank.
5. After checking whether the goods have been delivered or not, the bank pays the seller.
6. The negotiating bank forwards the shipping documents to the issuing bank to release the payment.
7. Then, the issuing bank sends these documents to the buyer and requests approval.
8. The buyer pays the issuing bank, and the bank forwards the amount to the negotiating bank.

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#letterofcreditservice #faqs #tradefinanceinstrument #typesoflettersofcredit #standbyletterofcredit #internationaltradetransactions

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How To Get A Letter Of Credit From A Bank To Import Goods From Overseas

Applying for a letter of credit (LC) with a bank for overseas transactions can be a complex process, but with careful planning and attention to detail, it can be a smooth and successful experience. An LC is a payment guarantee letter issued by a bank that guarantees payment to the seller for goods or services delivered to the buyer. Here are the steps to apply for an LC with a bank for overseas transactions.

Identify the Need for an LC: The first step is to determine whether an LC is needed for the overseas transaction. An LC provides a guarantee to the seller that they will receive payment, which can help to mitigate the risk of non-payment and secure the transaction.

Choose a Bank: The next step is to choose a bank that will offer a letter of credit service. Look for a bank that has experience with international trade and a good reputation in the global trade community.

Submit an Application: Submit an application to the bank for an LC. The application will typically require detailed information about the transaction, including the amount, currency, and terms of the LC.

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#standbylc #letterofcredit #internationaltrade #lcprovides #paymentguaranteeletter #importgoods

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Key Differences Between A Letter Of Credit Standby LC.pdf

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The Pros and Cons of Using Trade Finance to Finance Your Business

If talking about trade finance then it is a specialist financial service which offers money and help to international trade firms. It provides a variety of financing choices and technologies to support export and import transactions, assisting businesses in overcoming financial obstacles and expanding their business activities in the worldwide marketplace. While trade finance may be extremely advantageous to organizations, it is critical to recognize both the benefits and drawbacks of adopting trade finance as a funding solution.

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The Pros and Cons of Using Trade Finance to Finance Your Business.pdf

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