Things To Know About Letter Of Credit And SBLC

In the business world, higher are chances that you would have heard about financial instruments. Banking instruments are legal documents that help in facilitating business growth and trading.

The most commonly used financial instruments are Letter Of Credit (LC) and Standby Letter Of Credit (SBLC). Here let’s discuss more about SBLC and LC.

What is a Standby Letter Of Credit (SBLC)?

The Standby Letter Of Credit (SBLC) is a bank guarantee or legal financial document which guarantees an on-time payment to the seller in the event that the buyer couldn’t complete the payment. SBLC is the legal document and the payment made by the bank to the seller will be in the form of credit.

The buyer is bound to pay the credit with the interest as agreed with the bank earlier. The financial instrument will be used during international or domestic trading between two parties especially when the buyer and seller don’t know each other in advance.

Also, during trading between two countries where the rules and regulations are different, the financial instrument will help in many ways. In this way, one can ensure that there are no risks involved in the process and also make trading smoother and safer.

What is a Letter Of Credit (LC)?

A Letter Of Credit (LC) is a written financial or legal document by the importer’s bank on behalf of their client. The LC is a highly customizable and effective form of document which enables the new trading relationship by reducing the risks.

It can also add to the cost of doing some uncertain businesses in the form of formalities or bank fees. The LC is basically a letter which is issued by the bank to guarantee the payment of the particular person but doesn’t guarantee that the bank will complete the payment.

Advantages of using SBLC and LC:

Business owners who use financial instruments usually enjoy several benefits especially while carrying out international trade transactions. Some major benefits of using financial instruments are as follows:

• It offers the trading partners a chance to transact and interact with unknown people and establish new trade relationships.
• It will help the business to expand and broaden the business quickly to new geographical regions.
• The SBLC and LC are highly effective and stable.
• Both trading partners can put their terms and conditions as per their requirements and demands of the trading. They can mutually arrive at a common trading condition so that they can make the overall experience of trading smooth.
• It makes trading smooth and reduces the conflicts arising out of liabilities.
• Getting financial instruments such as SBLC and LC is a safer option for the exporters so that one can verify the buyer’s creditworthiness.
• Especially when a large amount of money is involved in trading one can get the banking instrument to make the transaction easier.

Hence for the above-mentioned reasons as a businessman, you can get the financial instrument from offshore banks easily by applying online. Make sure that you apply it in advance so that you can make the trading smooth.