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Whats the differance from Stand By Letter of Credit and Letter of Credit? |
Whats the differance from Stand By Letter of Credit and Letter of Credit? The best answer to your question can be found on this website, which is clear and concise... http://www.creditmanagementworld.com/let... Basically, standby letters of credits act as a guaranty in the event the debtor does not pay as they are supposed to. On the other hand, a documentary letter of credit WILL be paid once the work has been completed or the merchandise received. Hence, a standby letter of credit is RARELY drawn and is allowed to expire. Source(s): http://www.creditmanagementworld.com... Letter of Credit: an instrument issued by a banker authorizing a person named to make drafts upon the issuer up to an amount specified. Stand-by clause: A stipulation that states a letter of credit will be called back if the payer defaults. http://dictionary.reference.com... www.investopedia.com A letter of credit is a method of financing and is used extensively in international trade. The buyer opens the LC in favor of the seller. The seller can not collect until he has fulfilled his part of the contract, and has provided the documentation called for. The buyer can not take possession of the goods until he has fulfilled his part of the contract by paying the bank that opened the L/C for him. In this connection there are several different types of L/Cs - the most common is called IRREVOCABLE, CONFIRMED L/C. There is the ASSIGNABLE L/C, the UNCONFIRMED L/C. A stand by letter of credit can be correctly called a line of credit. It is also a method of financing. A business owner can draw on his stand by L/C to pay his bills, purchase new equipment, or any other legitimate business reason. The draws must be repaid at the rate of interest stated in the L/C. I presently have a stand by letter of credit with my bank for the purpose of growing my company. |
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