Standby Letter of Credit is considered to be the most popular method of payment guarantee used by traders to facilitate their global or domestic trade transactions. Since it helps traders to conclude their deals without facing cash flow issues; also assists to reduce the fiscal risk involved in global trade. The traders mostly prefer to use SBLC Transaction as their payment terms.
SBLC is the short form of a Standby Letter of Credit. It is a written commitment issued by a bank stating that the bank will be liable to pay the seller, in the event of the buyer’s default. Usually, buyers and sellers prefer to use Standby LC as their payment method. Because it certifies the buyer’s credit status; also confirms their ability to fulfill the payment terms as per the signed contract. Further, it’s also perceived as “Payment of Last Resort”. Because in the event, if the business entity declares bankruptcy, or cannot meet the financial commitment, then the bank will take action to fulfill the contractual terms, on behalf of their client.
A buyer makes a deal with a seller to import certain goods or products. The seller wants an assurance from the buyer; to secure the deal against the buyer’s default on failing to fulfill the payment term; as per the agreed contract. So, they demand the buyer to provide a Standby LC as part of their contract.
The buyer arranges the SBLC MT760 in favor of the seller. After receiving the Standby LC, the seller starts shipping the goods. And in case, if the buyer fails to fulfill their payment terms; the seller needs to submit the documents to the respective bank; as stated in the issued SBLC to claim their payment. The Standby LC claim documents have to comply with the contract or the terms stated in the issued MT760.
For businesses concluded with Standby LC as the payment term, the greatest benefit is the ease of getting out of the worst-case scenario. In case, if the business declares bankruptcy, or closes down due to loss. Then the bank will be liable to fulfill its financial terms. Thus, the seller assured on payment. Also, it reduces the risk of the production order being changed; or canceled by the buyer.
For buyers, having SBLC adds more strength to their profile; also gives more confidence. The buyer needs to pay, only if they received the shipped goods as per the agreed specification in the signed contract.
While signing the contract for a larger quantity of goods, having SBLC in hand can add credibility to the buyer and can also help them to avoid any upfront payment to the seller.
When you contact your bank to avail MT760 on your behalf, there are many aspects that the bank will take into consideration; prior to issuing the MT760. Further, banks also demand cash margin or tangible collateral needed to protect the bank from any fiscal risk. The amount of collateral required by the bank will depend on the value of the SBLC you require.
Traders who are not capable to provide such collateral cannot be able to avail SBLC facility from their bank. Finally, they can’t able to conclude their trade deals. So, to help traders who face a lack of bank facilities or lack of cash flow to avail trade finance, Bronze Wing Trading L.L.C., the SBLC Providers in Dubai is here to assist the traders.
With a team of experienced trade finance consultants, we work for our clients globally by structuring their trade deals in the best possible way which will help them to conclude their trade deals on time.
Submit your SBLC Request to us now and get your trade transactions concluded in a timely manner!
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