The Various Uses and Benefits of a Standby LC

Do you have a business in the UAE that deals with matters of national and international trade? If your reply is yes, then you might be always thinking of strategies to reduce the incidence of risk when you are dealing with an exporter or imported in the trading circuit within or beyond borders. Now only the trading partners, but well-known banks are also involved in the whole process of financial agreements and trade deals. A letter of credit, technically known as standby lc, is a primary instrument to help you carry on with the activities related to international trade.

National and International Trade

Assuring the Payment Obligation

Among the major benefits of the letter of credit, the assurance of payment is definitely considered as the most critical one. Suppose you are a supplier to an international seller. The seller has placed an order and you need to comply with its details. But you are unsure regarding the payment on the delivery. In such a situation, you need to get an assurance that you will receive the full payment when you have delivered the order complying by the contract details. The seller needs to obtain the lc from a reputed bank and give it to you.

Increasing the Credit Worthiness

Now consider the fact that you are the importer. You have placed an order with an American or European trading partner for a particular product. But your trading partner doesn’t know whether you will be able to pay. The export company wants a full-proof legal document that tells about your creditworthiness. The instrument of lc is the document that you need to obtain from a bank and use it in this situation. It instantly increases your credit worthiness in the competitive market. After sending it to the seller, you help to process the international contract.

Credit Worthiness‚Äč

The Ease of Payment

Often, as a trader, you are worried about the dynamics of the trade. Payment is a critical activity that needs to be monitored on a constant basis. The standby letter of credit makes the whole payment process extremely transparent and accountable to all the involved parties. The bank plays the major part as the medium that initiates and completes the payment process between the partners without any technical fuss. As a supplier, you are assured of a seamless payment procedure. Even as a buyer, you know that the money that you are spending is being processed through safe channels.