logo
We combine technology and traditional phone-based services with competitive and transparent pricing to deliver on the promise of simple, cost-effective, and customer friendly trade finance and foreign exchange services.
Learn More

Trade Finance

Standby Letters of Credit

The standby letter of credit is an international bank guarantee “upon first demand” and a document issued under a letter of credit to secure the good performance of a contract or an obligation. It is subject either to the UCP 500 or to the ISP 98, effective since January 1, 1999. The ISP 98 are international rules and practices stemming from the ICC uniform customs and practice relative to the documentary credit (UCP), recognized worldwide as the code of practices governing commercial letters of credit. The ISP 98 condenses the expertise of bankers, traders, ratings agencies, companies, treasurers, credit managers, governmental institutions and banking control authorities, and is considered as an international norm for standby letters of credit. The standby letter of credit is similar to the documentary credit since documents stipulated on the credit must be presented for a claim. The documentary credit is an instrument and a guarantee of payment while the standby letter of credit is only a guarantee of payment.

Parties Involved

The applicant Is the buyer or the seller depending on the type of standby letter of credit.
The issuing bank Is the applicant`s bank that issues the standby letter of credit.
The advising bank Is the issuing bank`s agent which notifies the standby letter of credit to the beneficiary without making any commitment in favor of the latter.
The confirming bank Is the bank which undertakes to play the beneficiary.
The beneficiary Is the seller or the buyer depending on the type of standby letter of credit.
Process

1. Conclusion of commercial contract

The buyer and the seller are in agreement and sign the commercial contract.

2. Initial request for standby L/C

The buyer (applicant) requests their bank to issue a standby L/C in favor of the seller (beneficiary).

3. Issuance of the standby L/C

The buyer (issuing bank) issues the standby L/C and sends it to its correspondent bank in the seller`s country or directly to the seller.

4. Advising or confirmation of the standby L/C

The correspondent bank (advising or confirming bank) authenticates and advises the standby L/C to the seller.

5. Shipment of goods and payment

The seller ships the goods to the applicant. The applicant then pays the seller in return.

By paying cash or at
term in the best
conditions
We can issue sight credits, or else deferred payment or acceptance credits. In the latter cases, you can benefit from a term of payment. The standby letter of credit is an international bank guarantee upon first demand and is issued under a letter of credit to secure the good performance of a contact. It is subject to the uniform customs and practices (UCP). The standby letter of credit is a simple and flexible means of payment that offers you commercial coverage.

Types

Bid/Tender bond
standby
Supports an obligation of the applicant to execute a contract if the applicant is rewarded a bid.
Advance
payment
standby
Supports an obligation to account for an advance payment made by the beneficiary to the applicant.
Good
performance
standby
Supports an obligation to perform other than to pay money, including for the purpose of covering losses arising from a default of the applicant in completion of the underlying transactions.
Commercial
standby
Supports the obligation of an applicant to pay for goods or services in the event of non-payment by other methods.
Advantages

The standby letter of credit is an instrument adapted to continuous transaction flows which permit you to:

Facilitate the management of your operations

Few documents are needed when a claim is made under the guarantee: a draft, a payment demand, and a beneficiary signed authorization are generally sufficient. The beneficiary will appreciate this.

Optimize your financial charges

The standby letter of credit is a guarantee. It is not supposed to be claimed, so you and your supplier will have lighter document handling charges.

Retain entire control of the reception of your goods

As documents are addressed directly to you, you can take delivery of your goods faster and note their condition and conformity.