Standby letters of credit – Introduction

A standby Letter of credit is also known as a non-performing letter of credit. A standby Letter of credit is a type of guarantee of payment that is offered by a bank on the behalf of a client. If the client however fails to make the payment then the bank is supposed to take care of the expenses. Standby letter of credit ensure that the payment even if is not provided to the supplier is taken care of by the bank itself. There are no discrete steps involved in a standby Letter of credit. They do not support any kind of discrete trade transactions. Bank issues a standby Letter of credit for the concerned client that means that the bank is ready to vouch for the client and is ready to bear expenses on his par. If in any case the client is unable to pay to the beneficiary then that payment is done by the bank itself. It is just like giving a guarantee to the beneficiary that the bank’s client would make the payment and if not then the bank could always be approached. Banks may stand behind monetary obligations and might ensure the refund of the advance payment as well. The banks might also assess the performance and support it as well. They might also bid obligations and also see to it that a particular sales contract has whether successfully completed or not. Thus the banks might ensure the completion of the sales contract as well.

Standby Letters of credit also known as non-performing letters of credit see to it that the transaction between the beneficiary and the buyer gets completed in a proper time period or not. SLOC or SLC is generally used to describe a Standby Letter of credit. The abbreviation is used in most of the cases.