A Standby Letter of Credit essentially serves as a secondary payment mechanism that is triggered in the event of a default from the buyer. If the buyer defaults or fails to perform its obligation to the seller, this gives the seller the permission to draw under the SBLC upon submission of complying documents which usually includes a draft, written notice of demand for payment / claims, and proof of default.
THINGS TO NOTE
Buyer and Seller can do the payment and delivery of goods multiple times as long as the SBLC is valid.
This can be done up to the maximum value of the SBLC.
BENEFITS OF SBLC
- Preserve your cash and free up your working capital
- Can secure a regular supply of goods
- Gives you more quality control over your goods.
- Increased certainty that the goods will be delivered from the seller
- Payment assurance to grow your business
- Collection time is minimized, as the letter of credit accelerates payment of receivables