Letter of Credit (LC) and Standby Letter of Credit (SBLC) are mostly used by importers and exporters as a payment in International Trade Transaction to ensure the financial safety between the buyer and the supplier. While LC is used as a primary method of payment, SBLC is used when there is a buyer’s non-performance during the trade transaction. Read this article to know the basic difference between LC & SBLC.
The benefit of using LC & SBLC in international trade is – the buyer gets an assurance of receiving their products on time; also, the seller gets the assurance of being paid on time for the supplied goods.
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. Also, in case, if the buyer fails to fulfill their terms, the bank will pay the seller. Further, upon the submission of documents, as stated in the issued LC.
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 nonpayment 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.
LC gives assurance to the seller that they will receive the payment, upon the submission of the document as stated in the issued LC. In the same way, Standby LC acts as a guarantee issued by a bank to fulfill the payment commitment towards the seller, in case if the buyer failed to meet the financial terms, as agreed in the contract. The main difference between LC & SBLC are as follows:
• LC acts as a primary method of payment, whereas SBLC comes into action only; in case of any default in making the payment.
• LC is relayed via authenticated SWIFT MT700; further, SBLC is issued via SWIFT MT760.
Despite this difference, both LC MT700 and SBLC MT760 act as payment assurance; also, helps in facilitating global trade transactions without facing any fiscal risk.
Do you require LC or SBLC for your trade deals? Are you going to get help from your bank? To avail these trade finance services from banks, you may require to provide tangible collateral or need to maintain a 100% cash margin in your bank account.
But being a trader, arranging a 100% cash margin seems to be difficult. Of course, in some cases, it’s even impossible. We clearly understood the financial issues faced by traders like You. That’s why, Bronze Wing Trading, trade finance providers in Dubai provides these financial tools without availing cash margin or collateral.
Further, we provide these trade finance services on behalf of your company by extending our credit lines available with European Banks. 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! And so, we can assist you by providing the right trade finance solution that meets all your finance needs.
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