Do you need a Standby Letter of Credit (SBLC) for trade finance or for import & export transactions? Then this article is for you. Kingrise Finance Limited is a genuine SBLC provider, real provider of standby letters of credit, we lease sblc, bg sblc providers.
Standby Letter of Credit (SBLC) plays a vital role in international trade and other business transactions. They are used in almost every phase of the transaction between the buyer and the seller.
So how does it work?
A bank will issue a Standby Letter of Credit on behalf of a client to provide assurances of his/her ability to perform under the terms and conditions of a contract between the client and the beneficiary.
The parties involved with the transaction do not expect that the Standby Letter of Credit (SBLC) will ever be drawn upon.
The Standby Letter of Credit guarantees the beneficiary of the performance of the client’s obligation. The beneficiary is able to draw under the credit by presenting documents and evidence to the issuing bank that the client has not performed its obligation. The issuing bank is obligated to make payment if the documents presented comply with the terms and conditions of the Standby Letter of Credit.
If you’re familiar with escrow services, the concept is similar: Banks act as “disinterested” third parties. The bank doesn’t take anybody’s side, and banks release funds only after certain conditions are met. Letters of credit are common in international trade, but they are also helpful for domestic transactions like construction projects.
In International Trade
Importers and exporters regularly use letters of credit to protect themselves. Working with an overseas buyer can be risky because you don’t really know who you’re working with.
A buyer may be honest and have good intentions, but business troubles or political unrest can delay payment or put a buyer out of business.
Also, communication is difficult across thousands of miles, different time zones, and different languages. A letter of credit spells out the details so that everybody is on the same page. Instead of assuming that things will work a certain way, everybody agrees on the process up front.
What is a Standby Letter of Credit (SBLC / SLOC)?
A Standby Letter of Credit (SBLC / SLOC) is a guarantee that is made by a bank on behalf of a client, which ensures payment will be made even if their client cannot fulfill the payment. It is a payment of last resort from the bank, and ideally, is never meant to be used.
How can a contractual SBLC be used?
An SBLC is frequently used as a safety mechanism for the beneficiary, in an attempt to hedge out risks associated with the trade. Simplistically, it is a guarantee of payment which will be issued by a bank on the behalf of a client. It is also perceived as a “payment of last resort” due to the circumstances under which it is called upon. The SBLC prevents contracts going unfulfilled if a business declares bankruptcy or cannot otherwise meet financial obligations.
Furthermore, the presence of an SBLC is usually seen as a sign of good faith as it provides proof of the buyer’s credit quality and the ability to make payment. In order to set this up, a short underwriting duty is performed to ensure the credit quality of the party that is looking for a letter of credit. Once this has been performed, a notification is then sent to the bank of the party who requested the Letter of Credit (typically the seller).
In the case of a default, the counter-party may have part of the finance paid back by the issuing bank under an SBLC. Standby Letter of Credit’s are used to promote confidence in companies because of this.
What are the fees for Standby Letters of Credit?
At Kingrise Finance Limited, our sblc fee is 4% of the SBLC value. In the event that the business meets the contractual obligations prior to the due date, the SBLC will be ended with no further charges. Kingrise Finance Limited is a Standby Letters of Credit Provider.
What is the difference between SBLCs and LCs?
A Standby Letter of Credit is different from a Letter of Credit. An SBLC is paid when called on after conditions have not been fulfilled. However, a Letter of Credit is the guarantee of payment when certain specifications are met and documents received from the selling party.
Letters of credit promote trust in a transaction, due to the nature of international dealings, distance, knowledge of another party and legal differences.
How do SBLCs work in Cross-Border trade?
Where goods are sold to a counter-party in another country, they may have used an SBLC to ensure their seller will be paid. In the event that there is non-payment, the seller will present the SBLC to the buyer’s bank so that payment is received.
A performance SBLC makes sure that the criteria surrounding the trade such as suitability and quality of goods are met.
We sometimes see SBLCs in construction contracts as the build must fulfill many quality and time specifications. In the event that the contractor does not fulfill these specifications then there is no need to prove loss or have long protracted negotiations; the SBLC is provided to the bank and payment is then received.
Why are they issued?
Standby Letters of Credit (SBLC) are usually issued by banks to guarantee financial obligations, to assure the refund of advance payments, to support performance and bid obligations, or to assure the completion of a sales contract. The Standby Letter of Credit always has an expiration date.
The Standby Letter of Credit is often used to guarantee contract performance or to strengthen the credit worthiness of a client.
If payments are made in accordance with the suppliers’ terms and conditions, the Standby Letter of Credit (SBLC) would not have to be drawn on. The seller goes to directly to the customer for payment.
What if the client doesn’t pay? If the client is unable to pay, the seller presents the documents to the issuing bank for payment.
The Standby Letter Of Credit (SBLC) is governed by a set of guidelines known as the Uniform Customs and Practice (UCP 600), which was first created in the 1930s by the International Chamber of Commerce (ICC).
How Does a Client Receive a Standby Letter of Credit (SBLC) from Kingrise Finance Limited?
Step 1: Application
Fill out and return the Standby Letter of Credit (SBLC) Application
Step 2: Issuing of Draft
A draft of the Standby Letter of Credit (SBLC) will be created for you and your seller/supplier/exporter to review.
Step 3: Draft Review and Opening Payment
a) Finalize the draft between you and your seller/exporter and sign off on the draft (changes are free of cost).
b) We issue you a payment invoice for the SBLC, which you arrange to pay.
c) Once we receive your wire payment, we will release the finalized Standby Letter of Credit (SBLC) to the bank for issuance and delivery.
Step 4: Issuance
More often than not, the bank will issue the Standby Letter of Credit (SBLC) within 48 hours of release.
Once issued, a copy of the SBLC will be emailed to you as it is transmitted by SWIFT, including the reference number of the SBLC.
Your seller’s bank should be able to receive and confirm the Standby Letter of Credit (SBLC) transmission soon thereafter.
Step 5: Presentation of Documents
Once the seller/exporter has prepared and loaded all goods for shipment, they must send the specified documents for that particular shipment to their own bank.
Their bank will then forward the documents to our bank, and we will email you copies of the presentation and all of the documents that were submitted by the seller/exporter for your review and approval.
Step 6: Payment of Goods
Before our bank can release the original documents, we must receive payment for the presentation.
Once we have received payment, we cosign the documents to you and overnight them to your freight forwarder or to whomever you wish. This completes the transaction.
How to Get a Letter of Credit: To get a letter of credit, contact Kingrise Finance Limited