Use of Standby Letter of Credit Monetization in International Trade

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Use of Standby Letter of Credit Monetization in
international Trade
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• Modern requirements for the organization of
  foreign economic activity of enterprises provide
  for the need to build effective schemes for
  international settlements in order to avoid the
  emergence of various external and internal risks.
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• The main one is the risk of loss of own funds. In
  practice, in recent years, more and more
  attention has been paid to such forms of securing
  obligations under foreign trade contracts, such
  as a standby letter of credit monetization.
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• Standby Letter of Credit Monetization

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• A standby letter of credit is a type of
  documentary letter of credit that represents the
  obligations of the issuing lease BG SBLC
  providers to the beneficiary. These obligations
  may relate to the need to refund money that was
  received by the ordering party, or the return of
  an advance payment that was made to the ordering
  party. Another case may consist of the
  requirement to pay according to the obligation of
  the applicant if he did not fulfill it for some
  reason.
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• Below are examples of using such a tool
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• If the seller and the buyer have entered into a
  contract, according to which the seller is
  obliged to provide the buyer with any services or
  deliver goods, the seller may require additional
  guarantees for the fulfillment of obligations to
  pay for goods and/or services by the buyer.

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• The lease BG SBLC providers in this case give the
  seller confidence that if the buyer does not pay
  the money, the lease BG SBLC providers will pay
  it that is, the bank that issued this standby
  letter of credit or provided a bank guarantee.
• If the seller sells the goods to the buyer and
  under the terms of the contract the buyer is
  obliged to make any advance payment to the
  seller, then the buyer can demand from the seller
  additional guarantees that the goods will be
  delivered in full and on time according to the
  terms of the contract, otherwise the advance
  payment must be returned to the buyer. A standby
  letter of credit in this case also acts as a form
  of additional security for the sellers
  obligations.

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• In both cases, the beneficiary, as it were,
  transfers the risk of non-payment or
  non-compliance with the terms of the contract to
  a third party the financial intermediary, which
  issues this standby letter of credit. This
  standby letter of credit serves in the future to
  protect the Beneficiary from risks.
• When working in the market, it is very important
  to understand the difference between standby
  letters of credit and ordinary documentary
  letters of credit. The main difference lies in
  the nature of the obligations guaranteed to the
  beneficiary. So, when using a documentary letter
  of credit, the beneficiary must submit documents
  in full compliance with the terms of the letter
  of credit, which indicate that the shipment of
  goods was made in full compliance with the terms
  of the contract. For a standby letter of credit
  monetization, the beneficiary must submit a
  document that indicates that the applicant has
  not fulfilled his obligation to the beneficiary.

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