Stand Alone Letters Of Credit

A letter of credit lc also known as a documentary credit or bankers commercial credit or letter of undertaking lou is a payment mechanism used in international trade to provide an economic guarantee from a creditworthy bank to an exporter of goods.

Stand alone letters of credit.

This is the customer of the bank who applies to the bank for the standby letter of credit. A letter of credit is a credit document used to make payment to the beneficiary upon the fulfillment of contractual obligations. Bank letters of credit l cs have been used in commerce since medieval times. Both these letters are used to ensure the financial safety between the supplier and their buyers.

The letter of credit and the standby letter of credit are two legal bank documents that are used by international traders. Letters of credit are used extensively in the financing of international trade where the reliability of contracting parties cannot be. Before issuing the letter the bank typically evaluates the buyer s credit and determines that the business will repay the bank. An exporter sells goods to a foreign buyer who promises to pay within 60 days if the payment never arrives the exporter can collect payment from the foreign buyer s bank per the terms of the sblc.

However a standby letter of credit is a standby payment mode that can only be used by the beneficiary when the purchaser fails to make the payment for any reason. Standby letter of credit vs. He must provide collateral to the bank or have sufficient credit to induce the bank to issue the instrument. Each has a distinct purpose but both types were created to assure the parties in a commercial transaction that contractual obligations will be honored.

Such restricted cash consists of the cash deposit we are required to pledge as collateral under the existing stand alone letter of credit facility in an amount equal to 103 of the amount of outstanding letters of credit and with respect to the amount as of november 2 2014 also includes 10 0 million we deposited into an escrow as a source. Who are the parties to the standby letter of credit. A standby letter of credit is a bank s commitment of payment to a third party in the event that the bank s client defaults on an agreement. Advantages of a stand by letter of credit.