Standby letters of credit are created as a last resort by importers and exporters only in case that something goes wrong. Standby letters of credit protect buyers and sellers of non compliance to the conditions agreed by both sides.
For Standby letters of credit to be effective, a report needs to be sent to the issuer of the letter that the beneficiary failed to comply with the expected conditions. This form of credit documentation protects improve and enable transparent financial and commercial transactions outside the borders. For example, if the exporter sent merchandise that does not fulfill the expectations agreed a bank will be notified and he or she will not receive payment.
Some of the features of Standby letters of credit are:
They use SWIFT or authenticated telmex messages in order to deliver information outside borders. The banks are crucial in the validation of these documents because they are the ones that dictate whether or not the beneficiary is able to collect or not.
A convenient aspect of Standby letters of credit is the fact that they can be issued in any country. There are also not financial restrictions for amounts. However, the line of credit of the bank that issues them may be a limitation.
There are four types of Standby letters of credit: Irrevocable, Revocable, Revolving and Transferable.
They can be paid in more than one way and the payment methods are varied: Documentary Credit, Advance payment, Documentary collection and Direct payment
Standby letters of credit work similarly to regular letters of credit that protect imports. However, they require the issuing bank to provide security and availability of funds for the payment in case that the conditions are not met.
Let us now talk about some of the benefits of Standby letters or credit have:
First of all, they allow for better and more transparent international transactions providing protection to importers and exporters. Their creation requires negotiation and agreement between buyers and sellers. Standby letters of credit are accepted and originated in different countries.
Another positive aspect is that they are governed by laws that unify criteria and interpretations. Therefore they guarantee payment or fulfillment of commitments, contracts, purchase or sales.
Lastly, they contribute to the efficiency of international transactions for they set the process for conditions to be followed.
For Standby letters of credit to be effective, a report needs to be sent to the issuer of the letter that the beneficiary failed to comply with the expected conditions. This form of credit documentation protects improve and enable transparent financial and commercial transactions outside the borders. For example, if the exporter sent merchandise that does not fulfill the expectations agreed a bank will be notified and he or she will not receive payment.
Some of the features of Standby letters of credit are:
They use SWIFT or authenticated telmex messages in order to deliver information outside borders. The banks are crucial in the validation of these documents because they are the ones that dictate whether or not the beneficiary is able to collect or not.
A convenient aspect of Standby letters of credit is the fact that they can be issued in any country. There are also not financial restrictions for amounts. However, the line of credit of the bank that issues them may be a limitation.
There are four types of Standby letters of credit: Irrevocable, Revocable, Revolving and Transferable.
They can be paid in more than one way and the payment methods are varied: Documentary Credit, Advance payment, Documentary collection and Direct payment
Standby letters of credit work similarly to regular letters of credit that protect imports. However, they require the issuing bank to provide security and availability of funds for the payment in case that the conditions are not met.
Let us now talk about some of the benefits of Standby letters or credit have:
First of all, they allow for better and more transparent international transactions providing protection to importers and exporters. Their creation requires negotiation and agreement between buyers and sellers. Standby letters of credit are accepted and originated in different countries.
Another positive aspect is that they are governed by laws that unify criteria and interpretations. Therefore they guarantee payment or fulfillment of commitments, contracts, purchase or sales.
Lastly, they contribute to the efficiency of international transactions for they set the process for conditions to be followed.
About the Author:
Wade Henderson - recognized Professional - 15 yrs in the Business Finance Field - strong reputation for getting the deal done. IMMFinancial.com
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