Are you confused about whether to choose LC or SBLC for your global trade deal? Do you want to know which Bank instrument works better for global trade deals? This blog answers all your queries! “Is Letters of Credit and Standby LC MT760 are the same?” It’s the most common question we hear from traders when it comes to choosing Bank Instruments. But the answer is “Not at all”. Let us see – What is LC, What is SBLC & the Difference Between LC vs SBLC.
What is a Letter of Credit – LC?
Letters of Credit refers to an undertaking issued by a bank on behalf of its client to assure the counterparty that the client will make the payment upon the submission of documents as stated in the issued LC. The main role played by DLC MT700 is to make sure that the buyer pays, and in case of any default by the buyer in making the payment, the bank will pay the seller.
What is Standby Letter of Credit – SBLC?
Standby LC acts as a payment guarantee which assures the seller that the buyer will make the payment within the due date. It also assures that the bank will be liable to make the payment, in case of the buyer’s default. For instance: if the buyer faces cash flow crunches, bankruptcy, etc., and didn’t make the payment on time, then the seller can claim the SBLC to the buyer’s bank for payment. The bank will settle the payment to the seller, as long as the seller meets the requirements.
LC vs SBLC – What Are the Differences?
Both MT700 and MT760 are backed by a bank upon request of the buyer to ensure on-time payments while doing global trade deals. Before making a decision to choose either LC or SBLC as the right financial instrument, here are some key differences which you need to keep in mind:
- The main goal of the DLC MT700 is to ensure that the transaction goes as planned and the payment will be released after the shipment of goods. So, it’s called a primary method of payment in global trade. On the contrary, Standby LC comes into action, only if there are any unforeseen situations that happen in making the payment. This makes SBLC, the secondary mode of payment.
- By using DLC at Sight as a payment term, you need to pay your seller; right after the delivery of goods and the submission of documents to the bank. But, in the case of Standby LC, you can pay your seller before the payment due date; whether it can be 30 days or 90 days, based on the term mentioned in the issued SBLC.
- MT700 makes your international trade transaction safe and secure; whereas, SBLC provides security in long-term construction projects; as well as, used as a payment guarantee while dealing with domestic vendors.
How to Apply for LC or SBLC?
If you are going to deal with an international buyer, then you can choose DLC at Sight; as it helps to conclude your trade deals in a safe and secure way. On the other hand, if you are dealing with local suppliers and planning to purchase goods on a credit basis; then you can make use of Standby LC.
Have you decided whether to use LCs or SBLCs for your trade deal? No matter, whether you want MT700 or MT760, we are here to help you with the issuance process!
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