In the worst case, when a company goes bankrupt or ceases operations, the bank issuing the SLOC fulfills its client`s obligations. The customer pays a fee for each year of validity of the letter. As a rule, the fee is 1% to 10% of the total commitment per year. The procedure for obtaining a SLOC is similar to applying for credit. The bank only issues them after the applicant`s credit quality has ended. A standby credit (SLOC) is a legal document guaranteeing a bank`s payment obligation to a seller in case the buyer – or the bank`s customer – is late in the agreement. A standby credit facilitates international trade between companies that do not know each other and have different laws and regulations. Although the buyer is sure to get the goods and the seller is sure to receive payment, a SLOC does not guarantee that the buyer is satisfied with the goods. A standby credit can also be abbreviated sbLC. The beneficiary of a standby credit can be sure to make transactions with a person or company that can pay the bill or complete the project. For the company presented with an SLOC, the biggest advantage is the potential ease to get out of this most pessimistic scenario. If an agreement provides for payment within 30 days of delivery and payment is not made, the seller may submit the SLOC to the buyer`s bank for payment.
Thus, the seller is certainly paid. Another advantage for the seller is that the SBLC reduces the risk of the production order being changed or cancelled by the buyer. A SLOC is the most sought after by a company to get a contract. The contract is a standby agreement, because the bank only has to pay in the worst case. Although an SBLC guarantees payment to a seller, the agreement must be followed to the letter. For example, a delay in shipping or a misspelling of a company`s name can lead the bank to refuse payment. There are two main types of standby accreditors: even small businesses can struggle to compete with larger, more well-known competitors. An SBLC can give credibility to its offer for a project and can often help avoid a down payment to the seller. An SBLC ensures that the buyer receives the goods or services described in the document. For example, when a contract provides for the construction of a building and the client does not deliver, the customer presents the SLOC to the bank to make it an entire building. Another advantage in global trade is that a buyer has an increased guarantee that the goods are delivered by the seller….