A Basic Understanding of Standby Letters of Credit

Engaging in investments, such as international trade, can be a risky business for everyone involved. One of the best ways to offer protection to both parties is to use standby letters of credit to secure the funds and ensure everyone follows the terms of the deal. Many SBLC providers can help you draft one of these agreements with buyers or sellers.

The Origins of These Letters

Years ago, there were few ways for buyers and sellers to ensure payments would be made when the conditions of the contract were fulfilled. This was especially true when buyers and sellers resided in different states where laws regarding these contracts were likely different. The use of standby letters of credit overcame the differences between state law and provided assurance to all parties involved that the contract would be fulfilled as it was drafted. Over time, these documents were again altered to work on an international level, giving buyers and sellers even greater versatility in their investments.

A Written Guarantee

SBLC providers issue standby letters of credit as a form of written guarantee between the buyer and the seller. If the buyer defaults on paying the seller for the products received, the bank uses this letter to guarantee payment to the seller, despite the lack of payment by the buyer. Likewise, the letter assures the buyer will receive his money back if the seller doesn’t come through with the terms of the contract. Because of the way in which these documents are drafted, the conditions are indisputable by either party.

A Detailed Plan

To ensure the validity of standby letters of credit, it is essential to include as many details as possible. These details will dictate what conditions must be met, as well as a deadline by which the contract should be completed. It will also provide clear information on what will happen if either party fails to carry through the conditions. This ensures protection for everyone involved in the transaction.
SBLC providers strive to help buyers and sellers make smart choices in their investment options. These standby letters of credit offer protection beyond what a contract can offer. It ensures buyers receive the promised products or services or their money back, as well as provides sellers assurance that they will receive the promised payment once their obligations have been met.