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Difference between LC and SBLC: Letter of Credit vs Standby Letter of Credit

Difference between LC and SBLC

Letters of Credit and Standby LC are the most popular financial instruments used in international trade deals. Even though, both LC MT700 and SBLC MT760 used to ensure the fiscal safety between the buyer and the seller; there are some basic differences in the product which we will discuss in this post.

Difference Between LC and SBLC

Letters of Credit Definition

Letters of Credit – LC MT700, a written undertaking issued by the bank on behalf of the buyer to assure the supplier that the buyer will fulfill their payment obligation and pays the full payment on time. Here, the bank plays a role to make sure that the buyer pays once they received the goods. And in case, if the buyer fails to fulfill their terms, the bank will pay to the seller. Further, upon the submission of documents, as stated in the issued LC.

Standby LC Definition

Standby LC works on the same method as an LC MT700. This financial instrument issued by a bank on behalf of the buyer assures the payment to the supplier, in case of non payment of the buyer. Also, considered as the payment of last resort, it comes into the act, in case, if the importer fails to make the payment. At that time, the supplier will claim the MT760 and they can demand the payment from the SBLC issuing bank. Also, with the SBLC, the buyer cannot deny the payment due to bankruptcy, lack of cash flow, company shutdown, etc. As long as, the seller complies with the SBLC terms, the bank will make the payment.

In Brief: Difference Between LC and SBLC

LC gives payment assurance to the seller that the buyer will make the payment on time. Likewise, Standby LC acts as a guarantee issued by a bank that assures the payment, if the buyer failed to meet the financial terms. In such a case, as a “Payment of last resort”, the bank will undertake the payment on behalf of their clients to the seller. Further, this payment is available to sellers, only if they prove the buyer’s default to the issuing bank.

Furthermore, LC MT700 and SBLC MT760 act as a payment assurance and helps in facilitating global trade transactions without facing any fiscal risk. On the other hand, to avail these trade finance services from banks, traders required to provide tangible collateral or need to maintain a 100% cash margin in their account.

But being a trader, arranging 100% cash margin seems to be difficult. And, in some cases, it’s even impossible. We clearly understood the fiscal issues faced by traders. That’s why, Bronze Wing Trading, trade finance providers in Dubai provide these financial tools without availing cash margin or collateral.

Further, we provide these trade finance services on behalf of your company from our rated bank account. Also, we strive our best to conclude your deal within 48 working hours.

If you’re looking to avail LC MT700 or SBLC MT760, contact us today! We can assist you by providing the right trade finance solution that meets all your finance needs.

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