Let us talk about some of the positive and negative aspects of the SBLC, commonly known as a Standby Letter of Credit.
Compared to other types of Letters of Credit, Standby Letter of Credit may be more beneficial for trade. The SBLC uses the original documents and the bill of lading in order to obtain payment for the merchandise from a seller to a buyer. This is all done in different parts and the process concludes when the merchandise arrives at the port.
Document verification is done at once, and it is less stringent and faster. The documents to be produced by the recipient are very simplified.
For other type of credit documentation, Letter of Credit and so on, the document flow is more complicated. The reason is that Letter of Credit have more participants in the process and there is information running from an advisory bank to an issuing bank. The verification process for this type of document usually takes ten days. If the merchandise arrives by boat, sometimes the documents arrive later. Additionally in order for the shipping company to transport the merchandise, a bill of lading has to be issued.
Letters of Credit offer one advantage that SBLC do not and that is the fact that they can be used as means of payment. A SBLC do provide certain protection for the holder in case of non-payment however they do not function the same way as other credit documents. It is therefore not advisable to compare them on these grounds.
One of the disadvantages that we can note on Standby Letter of Credit is in terms of the protection it provides to the buyer. Letters of credit are generally providing equal protection to the parts involved in the trade. However, the process may be more favorable to one side more than to the other. According to the International Standby rules or ISP98 the revision process will take from 3 days up to a week. The buyer is more at a disadvantage because the period may be too short to review details or typos within the document that may hinder delivery. Some people compare a SBLC to blank checks to the order to seller.
Standby Letter of Credit is still a rather new document and this can represent a disadvantage in the legal area. Laws related to SBLC are young and in many cases uncertain, which makes other Letters of Credit more legally appealing.
Weighing the positive and negative aspects of Standby Letter of Credit, we can say that the protection against non-payment is one of the most attractive features of this letters of credit.
Compared to other types of Letters of Credit, Standby Letter of Credit may be more beneficial for trade. The SBLC uses the original documents and the bill of lading in order to obtain payment for the merchandise from a seller to a buyer. This is all done in different parts and the process concludes when the merchandise arrives at the port.
Document verification is done at once, and it is less stringent and faster. The documents to be produced by the recipient are very simplified.
For other type of credit documentation, Letter of Credit and so on, the document flow is more complicated. The reason is that Letter of Credit have more participants in the process and there is information running from an advisory bank to an issuing bank. The verification process for this type of document usually takes ten days. If the merchandise arrives by boat, sometimes the documents arrive later. Additionally in order for the shipping company to transport the merchandise, a bill of lading has to be issued.
Letters of Credit offer one advantage that SBLC do not and that is the fact that they can be used as means of payment. A SBLC do provide certain protection for the holder in case of non-payment however they do not function the same way as other credit documents. It is therefore not advisable to compare them on these grounds.
One of the disadvantages that we can note on Standby Letter of Credit is in terms of the protection it provides to the buyer. Letters of credit are generally providing equal protection to the parts involved in the trade. However, the process may be more favorable to one side more than to the other. According to the International Standby rules or ISP98 the revision process will take from 3 days up to a week. The buyer is more at a disadvantage because the period may be too short to review details or typos within the document that may hinder delivery. Some people compare a SBLC to blank checks to the order to seller.
Standby Letter of Credit is still a rather new document and this can represent a disadvantage in the legal area. Laws related to SBLC are young and in many cases uncertain, which makes other Letters of Credit more legally appealing.
Weighing the positive and negative aspects of Standby Letter of Credit, we can say that the protection against non-payment is one of the most attractive features of this letters of credit.
About the Author:
Wade Henderson - recognized Professional - 15 yrs in the Business Finance Field - strong reputation for getting the deal done. IMMFinancial.com Letter of Bank Export Documents Get a totally unique version of this article from our article submission service
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