Purpose Of Lease BG SBLC

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Purpose Of Lease BG SBLC
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• The lease BG SBLC is a type of letter of credit
  that serves as a guarantee to the seller in a
  commercial agreement.
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• In this sense, it is not a means of payment
  directly, but it is a guarantee of payment
  against non-payment by the importer.
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• When this bank instrument is used, the initial
  treatment is that once the conditions of the
  agreement have been fulfilled, the importer or
  buyer makes the payment for the merchandise.
  However, if there is a setback to fulfilling the
  commitment, the issuing bank assumes to make the
  payment on behalf of its client.

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• In this way, the exporter is covered by the
  possibility of non-payment. Likewise, the
  importer can agree with the bank on a more
  flexible form of payment.
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• Characteristics of standby lease BG SBLC
• The standby letter of credit allows the exporter
  or seller to have a guarantee in their commercial
  operations. This is in case the importer or buyer
  does not comply with the obligations acquired in
  the commercial agreement. Therefore, it does not
  constitute a means of payment.
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• The obligations included in an agreement with
  this type of letter of credit can be commercial,
  financial, or services. On the other hand, the
  entity that regulates the issuance of this bank
  instrument is the International Chamber of
  Commerce.

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• Differences between the common letter of credit
  and the standby
• The fundamental difference between the two
  letters of credit is that the common one acts as
  a means of payment and the standby one acts as a
  guarantee. In the first, once the parties have
  complied with the agreement, the issuing bank
  takes charge of the payment. In the second, the
  letter of credit is executed only if the importer
  or buyer fails to fulfill his obligations and the
  seller or exporter complied.
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• Also, in the common or normal, the parties are
  obliged to deliver more rigid documentation to
  enforce the agreement. Meanwhile, the standby is
  more flexible since it only represents a
  guarantee in case of non-compliance.
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• This occurs because there is a trust relationship
  between the buyer and the issuing bank. In this
  sense, in operational terms, the standby is more
  convenient for the seller because he only has to
  present documentation in case of non-compliance.

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• General considerations of the standby letter of
  credit
• The purpose of this bank instrument is to serve
  as a guarantee in a commercial agreement.
  Therefore, there are aspects to be taken into
  account by the seller such as the amount of
  coverage and expiration date. First, the seller
  makes sure that he receives full payment for his
  products or services from him.
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• Second, the due date guarantees a deadline to
  receive the corresponding payment, either by the
  buyer or the issuing bank. Automated collection
  is an important advantage despite the violation
  of the contract.
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• Finally, it is necessary to clarify the documents
  necessary to enforce the lease BG SBLC contract.
  In general, a default letter and the necessary
  documents are needed to prove that the seller
  complied with what was agreed.

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