Letter of Credit (LC) and Standby Letter of Credit (SBLC) are mostly used by importers and exporters as a payment method in international trade transactions to ensure financial safety between the buyer and the supplier. While LC is used as a primary method of payment, SBLC is used in case of a buyer’s non-performance during the trade transaction. Read this article to know the basic difference between LC & SBLC.
The benefit of using LC & SBLC in international trade is that the buyer gets assurance of receiving the products on time, while the seller gets assurance of being paid on time for the supplied goods.
Difference Between LC and SBLC
What is a Letter of Credit?
Letter of Credit – LC MT700 is a written undertaking issued by the bank on behalf of the buyer to assure the supplier that the buyer will fulfil their payment obligation and make the full payment on time. Here, the bank plays a role to make sure that the buyer pays once they receive the goods. Also, in case the buyer fails to fulfil their terms, the bank will pay the seller. Further, payment is made upon the submission of documents as stated in the issued LC.
Import Goods Without Making Upfront Payment – Apply LC at Sight
What is a Standby Letter of Credit?
Standby LC works in a similar way to LC MT700. This financial instrument is issued by a bank on behalf of the buyer to assure payment to the supplier in case of non-payment by the buyer. Also, considered a payment method of last resort, it comes into effect if the importer fails to make the payment. At that time, the supplier will claim the MT760 and can demand payment from the SBLC issuing bank.
Import Goods on a Credit Basis Using SBLC MT760 – Apply Now
Difference Between LC and SBLC
LC gives assurance to the seller that they will receive the payment upon the submission of the documents as stated in the issued LC. In the same way, Standby LC acts as a guarantee issued by a bank to fulfil the payment commitment towards the seller, in case the buyer fails to meet the financial terms agreed in the contract. The main difference between LC & SBLC is as follows:
- LC acts as a primary method of payment, whereas SBLC comes into action only in case of a default in payment.
- LC is relayed via authenticated SWIFT MT700; further, SBLC is issued via SWIFT MT760.
Despite this difference, both LC MT700 and SBLC MT760 act as payment assurance and help facilitate global trade transactions while reducing financial risks.
How to Open LC & SBLC from Banks?
Do you require LC or SBLC for your trade deals? Are you going to get help from your bank? To avail these trade finance services from banks, you may require collateral or need to maintain a 100% cash margin in your bank account.
But as a trader, arranging a 100% cash margin can be difficult and, in some cases, even impossible. We clearly understand the financial issues faced by traders like you. That’s why Bronze Wing Trading, a trade finance provider in Dubai, provides these financial tools without requiring a cash margin or collateral.
Further, we provide these trade finance services on behalf of your company by extending our credit lines available with European banks. Also, we strive to conclude your deal within 48 working hours.
If you’re looking to avail LC MT700 or SBLC MT760, contact us today! We can assist you by providing the right trade finance solution that meets your financial needs.