STANDBY LETTERS OF
CREDIT | SBLC | WHAT IS SBLC?
·
SBLC came into effect from 1999.
·
International Standby Practices, ICC Publication No. 590 is
published by International Chamber of Commerce to govern the SBLC - ISP - 98
·
UCP 600 also used to issue the Standby LC.
SBLC process step-by-Step / what is the process of SBLC?
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|
Sales
contract for goods / Services
SBLC
Agreement to secure the payment
Buyer
to apply the SBLC application
Applicant
Bank will issue the SBLC swift
(Finally advising Bank will confirm the
Final SBLC swift with Beneficiary)
Start
the shipment/delivery of Goods (Once SBLC is confirm applicant can
start the productions and delivery procedures as per sales contract) |
How long does it take to
issue the SBLC?
Generally, it will take minimum two (2) to five (5) working days
to issue a Standby LC if all are in order. Standby LC swift advice issued by
applicant Bank and automatically transmitted to Beneficiary Bank instantly.
Same copy will be received by Applicant and Beneficiary thereafter. However,
issuing a Standby LC (SBLC) will solely depend on the credit facility availability
with Bank and strongness of Banking relationship. In other cases, Cash Margin
or deposit of cash should be arranged against SBLC
- Approach the right Bank to issue a Standby LC. Usually, SBLC cost will be borne by applicant and therefore consider the Bank with least Cost.
- Fill up the SBLC/ Standby LC application.
- Submit the Standby LC application to Bank after arranging required signatories. Accordingly, Bank will perform its due diligence on the applicant to assess its creditworthiness, based on past credit history and credit facility availability.
- If the buyer’s creditworthiness is in question or Credit facility is not available at the time of submission of Standby LC application, the bank may require the applicant to provide cash margin or additional supporting like Cash deposits or PPE as collateral before approval.
- Applicant will also be required to provide the bank with additional supporting on Bank’s request like address validity of beneficiary’s information copies of sales contract, proforma invoices, purchase orders or any transport documents copies etc.
- Once all are in order, Bank will issue the Standby LC draft upon request of Applicant. This will help to resolve any disputes arise in latter stage. Applicant will be shared with beneficiary the Standby LC swift draft and negotiate with beneficiary to re check the Standby LC with sales agreement. Once all are in order Applicant confirmed to Bank to issue the Standby LC.
- Finally, Applicant Bank will issue the SBLC and shared with transmitted swift with Beneficiary.
What are the required
documents in SBLC? / Standby LC
Below outlined documents are generally
used in the SBLC and however, additional documents can be included according to
the nature of the shipment/ delivery / business and banking or country specific
itself requirements. However, it is recommended to have minimum below documents
in the Standby LC
- Beneficiary's original signed, stamped and dated statement Stating
that the applicant has not made full payment of invoices for the (insert description of
goods)
ordered by the applicant to be shipped from xx to xxx stating the Invoice no. date and amount unpaid. This statement
must be Issued on the beneficiary's letterhead and signatures appearing on the
statement must be verified by their bankers.
- Copy of unpaid invoices
- Copy of relative bills of lading / air waybills showing Shipper as beneficiary
How do you use SBLC?
SBLC is used as a Guarantee for seller
when buyer default a payment. If buyer default a payment as agreed in the sales
agreement, seller has right to claim under SBLC. In the SBLC (filed 46A) guide
seller to how claiming process should be done. As per SBLC documents required,
seller should contact beneficiary’s Bank and present the required documents to
Bank and accordingly, seller can apply for compensation to
default funds under Standby LC.
Who can issue the SBLC?
Standby LC will be issued by the
applicant’s Bank (buyers Bank) at the request of buyer.
How SBLC will cost / SBLC
charges
SBLC charges will be computed at flat
rate for the period of Standby LC usually a year with renewable in each year.
What is the difference
between SBLC and LC? / Difference between SBLC and Letter of Credit?
|
|
Stand
By LC / SBLC |
Letter
of Credit/ LC |
|
1 |
Governing rule is UCP 600
and ISP98 |
Governing rule is UCP 600 |
|
2 |
Standby LC act as a Guarantee a payment and not as a payment
option. However, when buyer default a payment seller has an option to go for
payment/ claim the Standby LC. |
Primarily act as a Payment mode. According to the documents
required (field 46A) documents to be presented to Bank in order to get the
payment. |
|
3 |
Documents requirements are comparatively
simple. |
Documents requirements may
vary and more complex. |
|
4 |
Documents presentation is not compulsory. Standby LC will
utilize only if there is payment default by buyer |
Documents presentation is compulsory. |
|
5 |
Usually issued for long
period and renewed every year. |
LC opens for specific
project unless revocable. |
What is the difference
between SBLC and LG? / Difference between Standby LC and Bank Guarantee?
Primarily for difference between Bank
Guarantee (BG) and Standby LC is to protect the parties in which loss of
non-payment. Standby LC protect from buyer’s payment default and Bank Guarantee
protect Buyer (Applicant) seller (beneficiary) both. There are some differences
and similarities between SBLC and Bank Guarantee and however, both are not
same.
|
|
Stand
By LC / (SBLC) |
Bank
Guarantee / (BG) |
|
1 |
Risk protection is only for
Seller. |
Risk protections is for
Buyer and seller both. |
|
2 |
Primarily Standby LC issued for long terms requirements. |
Bank Guarantee issued long term period as well as short term. |
|
3 |
SBLC primarily issued for
international trade. |
Bank Guarantee mainly issue
for Local transactions. |
|
4 |
Standby LC involves more than One Bank. Issuing Bank advising
Bank etc. |
Bank Guarantee involves only One Bank. That is Issuing Bank
Only. |
|
5 |
Standby LC has limited
scope. |
Bank Guarantee has wide
scope. |
Similarities between
SBLC and LC
SBLC
and LC both are considered as documentary nature and are irrevocable and
conditional payment promises, which is given by a Bank. SBLC and LC are both
governed by UCP 600. Standby LCand LC are based on the payment mechanism based
on the contracts of sale of goods and services.
Example of Standby LC / SBLC Example
Message Text
27: Sequence of Total
1/1
40A: Form of Documentary Credit
IRREVOCABLE STANDBY
20: Documentary Credit Number
SBXXXX099009XXXXX
31C: Date of Issue
180322
40E: Applicable Rules
UCP LATEST VERSION
31D: Date and Place of Expiry
190314UAE
50: Applicant
ABC COMPANY LIMITED
PO BOX XXX
USA
59; Beneficiary - Name & Address
XYZ COMPANY LIMITED
PO BOX XXX
USA
32B: Currency Code, Amount
Currency
USD (US DOLLAR)
Amount
#5,000,000#
39B: Maximum Credit Amount
NOT EXCEEDING
41A: Available With...By... - FI BIC
BBMEAEAD
HSBC BANK USA, N.A.
452 FIFTH AVENUE
BY NEGOTIATION
42C: Drafts at.
SIGHT
42A: Drawee - FI BIC
UNBEAEAA
45A: Descriptn of Goods &/or Services
SUPPLY OF ABC BRAND XXX SPARE PARTS
46A: Documents Required
1. BENEFICIARY'S ORIGINAL SIGNED, STAMPED
AND DATED STATEMENT
STATING THAT THE APPLICANT HAS NOT MADE FULL
PAYMENT OF INVOICES
FOR THE SUPPLY OF ABC BRAND XXX SPARE PARTS ORDERED
BY THE
APPLICANT TO BE SHIPPED FROM (COUNTRY OF
ORIGIN) TO USA STATING THE
INVOICE NO. DATE AND AMOUNT UNPAID. THIS
STATEMENT MUST BE
ISSUED ON THE BENEFICIARY'S LETTERHEAD AND
SIGNATURES APPEARING
ON THE STATEMENT MUST BE VERIFIED BY THEIR
BANKERS.
2.COPY OF UNPAID INVOICES COVERING SHIPMENT
OF THE ABOVE GOODS
3. COPY OF RELATIVE BILLS OF LADING / AIR
WAYBILLS SHOWING
SHIPPER AS XYZ COMPANY LIMITED, POX BOX XXX,
USA AND ALSO SHOWING PORT OF
LOADING/AIRPORT OF DEPARTURE AS "ANY PORT
/ AIRPORT IN
(COUNTRY OF ORIGIN)" AND PORT OF
DISCHARGE/AIRPORT OF DESTINATION AS "ANY
PORT / USA"
47A: Additional Conditions
1. WE HEREBY ISSUE OUR IRREVOCABLE STANDBY
LETTER OF CREDIT NO.
SBXXXX099009XXXXX, ON BEHALF OF APPLICANT – ABC
COMPANY LIMITED, IN FAVOUR OF BENEFICIARY XYZ COMPANY LIMITED FOR AN AMOUNT NOT
EXCEEDING USD 5,000,000.00 AVAILABLE BY NEGOTIATION OF BENEFICIARY'S
DRAFT DRAWN AT SIGHT ON HSBC BANK ACCOMPANIED
BY THE ABOVE MENTIONED
DOCUMENTS (FIELD 46A).
2. PARTIAL DRAWINGS ARE ALLOWED
3. ARTICLES 32 AND 14(C) OF UCP600 ARE NOT
VALID FOR THIS
STANDBY L/C.
4. ALL DOCUMENTS MUST BE MADE OUT IN ENGLISH
LANGUAGE.
5. ORIGINAL DOCUMENTS PRESENTED UNDER THIS
CREDIT TO INDICATE OUR
BANK NAME, STANDBY LC NO. AND DATE.
6. DOCUMENTS DATED PRIOR TO THE DATE OF
ISSUANCE OF THIS
STANDBY LC IS NOT ACCEPTABLE
7. NEGOTIATION UNDER RESERVE OR GUARANTEE IS
NOT PERMITTED.
**+‡+‡++++++++*++++++++++++++++++++++++
INSTRUCTION TO ADVISING/NOMINATED BANK:
A) DOCUMENTS MUST BE SENT BY COURIER TO HSBC
BANK
TEL:XXX BY ANY EXPRESS COURIER SERVICE.
EACH PRESENTATION OF DOCS MUST INDICATE OUR
STANDBY L/C NUMBER
AND THE ADVISING BANK REF. NUMBER.
B) UPON PRESENTATION OF COMPLIED DOCUMENTS AT
YOUR COUNTERS YOU
ARE REQUESTED TO ADVISE US BY SWIFT MT754
AMOUNT AND VALUE DATE
OF YOUR CLAIM, STATING AMOUNT OF DOCUMENTS
C) THIS STANDBY LETTER OF CREDIT IS SUBJECT TO
THE UNIFORM
CUSTOMS AND PRACTICE FOR DOCUMENTARY CREDITS
(2007 REVISION)
INTERNATIONAL CHAMBER OF COMMERCE BROCHURE
NO.600.
71B: Charges
ALL CHARGES UNDER THIS STANDBY LC ARE FOR
THE ACCOUNT OF APPLICANT.
48: Period for Presentation
WITHIN LC VALIDITY
49: Confirmation Instructions
WITHOUT
78: Instr to Payg/Accptg/NegotgBank
PAYMENT WILL BE EFFECTED 5 BANKING DAYS AFTER
DATE OF YOUR
AUTHENTICATED SWIFT MESSAGE CONFIRMING THAT
DOCUMENTS
PRESENTED ARE STRICTLY COMPLYING WITH THE
TERMS AND CONDITIONS
OF THIS CREDIT AND ADVISING TOTAL AMOUNT
CLAIMED AND
VALUE DATE AND CONFIRMING THAT DOCUMENTS HAVE
BEEN FORWARDED TO
US INDICATING COURIER COMPANY NAME AND RECEIPT
NO
72: Sender to Receiver Information
PLEASE ACKNOWLEDGE RECEIPT OF THIS
STANDBY L/C BY MT730
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