The perfect "back-up"
The Stand-by letter of credit (SBLC) is a "bank guarantee" in the form of a documentary credit. An SBLC is used to guarantee:
- Any failure to pay on the part of the purchaser/importer
- Any failure to perform the agreement on the part of the supplier/exporter
The SBLC is only used if the agreement between the two parties is not carried out or is carried out incorrectly. Only the documents requested by the terms of the SBLC are taken into consideration.
SBLCs are subject to the Uniform Customs and Practice (UCP) for documentary credits. This means that if commercial documents must be presented, UCP sets out the procedure by which they are verified.
It is worth noting that an SBLC may be confirmed whereas, a guarantee issued by the beneficiary's bank requires a double commitment since the issuing bank must counter-guarantee the guarantor bank.