TOP Reasons Why you should Avail Standby Letter of Credit for your Trade Deal
- Bronze Wing Trading
- May 30, 2019
- 2 min read
Updated: Mar 10, 2022
If you’re running an import and export business, you need to have a good financial backup to make it successful. But, not all every traders or business owners are always available with cash funds to execute their future contract. Some may experience lack of cash funds, lack of banking facilities and some may face lack of capital flow while concluding their trade deal. Trade Finance Facilities like Standby Letter of Credit has been specifically crafted to lend a helping hand to those traders who are looking for finance assistance to conclude their trade deal.
Definition of Standby Letter of Credit:-
Standby Letter or Credit is a payment guarantee or assurance provided by a bank on behalf of their client. This is used as “payment of last resort”; this means, if the client fails to fulfill the commitment with a third party, then the bank will be liable. Standby LC is considered as a sign of good faith in business transactions & also shows payment skills.
The Standby Letter of Credit is mainly used in international trade transactions which involve a large commitment of payment and more financial risks.
Example of Standby Letter of Credit
XXX Ltd, an exporter in Brazil received an order to supply goods to YYY Ltd in China. Here, the supplier from Brazil needs an assurance from the buyer company that it will make the timely payment once they shipped the goods. Obliging to the request of the supplier, the buyer issued Standby LC in favor of the supplier company.
This issued Standby LC assures that if due to any unforeseen circumstances, YYY Ltd in China fails to make payment to the supplier company, then the bank will be liable to make the payment to the supplier as per the agreed contract terms.
Providing SBLC in favor of the supplier establishes a trust connection between the buyer & the seller.
Advantages of Availing SBLC
Acts as a proof for the buyer’s financial ability & payment skills
Secures trade transaction and increase your ability to do business with traders both locally & globally.
Serves as a surety to avail credit lines; so traders can mobilize their business without investing their assets.
Helps to minimize risks, maximize production & assist to optimize profit.
Do you require Standby LC to conclude your trade deal? Is your bank demanding 100% cash margin or collateral to start your transaction?
Get help from trade finance providers like Bronze Wing Trading. We are the direct & trusted trade finance providers in Dubai. We offer trade finance assistance to traders who are in need of trade finance facilities to conclude their trade deal.
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