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.

They come in two basic types commercial also called documentary and stand by. 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. A letter of credit is a credit document used to make payment to the beneficiary upon the fulfillment of contractual obligations. 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.

Advantages of a stand by letter of credit. Bank letters of credit l cs have been used in commerce since medieval times. Standby letter of credit vs. This is the customer of the bank who applies to the bank for the standby letter of credit.

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. Letters of credit are used extensively in the financing of international trade where the reliability of contracting parties cannot be. He also must pay the bank a fee for issuing 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.

Both these letters are used to ensure the financial safety between the supplier and their buyers. Who are the parties to the standby letter of credit. Before issuing the letter the bank typically evaluates the buyer s credit and determines that the business will repay the bank. And sblc is a type of lc that is used when there is a contingent upon the performance of the buyer and this letter is available with the seller to prove.