How Standby Letter of Credit Is Different From A Normal Letter?

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How Standby Letter of Credit Is Different From A
Normal Letter?
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• Standby letter of credit is a very reliable means
  of payment for activities related to foreign
  trade, and is used to guarantee different kinds
  of obligations, in which if the applicant does
  not comply with the commitments made, the bank
  guarantees payment.
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• International Trade is an activity in which the
  way of payment and collection of international
  sales, exports and imports are of vital
  importance, with the addition that given the
  complexity of the operations carried out,
  choosing the most efficient form of payment, that
  is, the one that allows obtaining the maximum
  security of collection at the lowest possible
  costs, depending on the type of operation or
  parties involved, is essential for obtaining
  competitive prices that allow entry into foreign
  markets.

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• Therefore, in international trade, a wide variety
  of means or tools have been created that ensure
  payment to the seller, the letter of credit is
  one of those options.
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• The SBLC lease is a document issued by a bank
  (issuer) by order and express request of a client
  (orderer/importer), by which it authorizes the
  beneficiary (exporter) to issue a bill of
  exchange against the said bank or against another
  entity designated in the letter itself,
  committing to pay it, provided it is issued in
  accordance with the conditions of the letter of
  credit and accompanied by the required documents.

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• The standby letter of credit (or contingent
  credit) does not constitute a means of payment
  per se but functions more as a guarantee against
  the possible non-payment of an importer. The SBLC
  works as a guarantee presented by the importers
  bank that protects the exporter from possible
  non-payment of the merchandise that is the object
  of the sale.
• The International Chamber of Commerce (ICC)
  regulates the SBLC lease in two of its
  publications UCP 600 in general and, more
  specifically, UCP 590 International Stand by
  Practices.
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• The great operative difference between the letter
  of credit and the normal letters of credit is
  that in the normal letter of credit the
  documentation must be presented to the bank as a
  necessary condition to collect the export and in
  the letter of credit, there is only to present
  the documentation to the bank to collect if the
  importer has failed to pay within the stipulated
  period.

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• The main advantages of the standby letter of
  credit compared to normal letters of credit
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• The standby letter of credit is less
  operationally complex for the exporter than the
  normal letters of credit since the exporter only
  has to present the documentation required in the
  letters of credit in the event of default by the
  buyer.

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• In relation to ordinary guarantees, there is an
  absolute separation between them and the
  commercial operation they cover. Thus, while a
  commercial dispute over the compliance or
  non-compliance of any of the parties may
  contaminate the guarantee represented by the
  ordinary guarantees, the letter of credit is not
  affected in any way, and in the event of
  non-payment, the exporter presents the stipulated
  documents to the bank and the bank (if the
  documents are formally compliant) must pay.
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• The standby letter of credit is issued under the
  international CCI regulation, while the ordinary
  guarantees are subject to the legislation of the
  countries of the banks that guarantee the
  operations.

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