What is the different between letter of credit and standby letter of credit?

already exists.

Would you like to merge this question into it?

already exists as an alternate of this question.

Would you like to make it the primary and merge this question into it?

exists and is an alternate of .

A letter of credit is used as a method to facilitate payment of international trade transactions (ie: the import/export of goods/services).

Unlike a trade letter of credit, a standby letter of credit is NOT meant to be used for payment. A standby letter of credit is used as a form of "back-up" guarantee (hence the name "standby") used for a variety of purposes.

There are two types of standby letters of credit: Performance Standby L.C. and Financial Standby L.C.

Performance Standby's are used to guarantee some sort of performance of a contractual obligation. For example, a construction company building a highway bridge might be required by the highway department to put up a performance standby letter of credit ensuring that they will complete the project contracted or to warranty the work. Under normal circumstances the standby would not be drawn upon, however if the contractor abandoned the project midway through completion or if the bridge were unsafe, the standby letter of credit could be drawn upon for its specified dollar amount.

A Financial Standby Letter of Credit is similar in concept to the Performance Standby, but instead acts as a guarantee for payment of financial obligations.
For example, companies trading on securities markets are frequently required to have financial standbys in place benefiting the particular stock market exchange which can be drawn upon if they are for whatever reason unable to settle their trades at the end of the day.

Financial standby's can also be used in international trade, but in a different manner than standard letters of credit.
Normal trade letters of credit are intended to be used for pre-specified shipment(s) of goods or services. The letter of credit requires documents specifically evidencing the trade transaction itself and the letter of credit serves as the vehicle for payment of the trade transaction.
When financial standby's are used for trade purposes, they are not intended as a means of payment, but as with all standby's, act as a "back-up" guarantee.
Financial standbys frequently are used between buyers and sellers who have frequent, ongoing trade shipments for an extended period of time. The standby acts as a blanket guarantee for the overall obligations of the buyer to pay and does not contains specifics related to any one particular shipment.
1 person found this useful

What is the difference between Credit Consolidation and Credit Settlement?

Answer . In general terms, credit consolidation is used to structure a person's situation, so they can continue to meet financial oligations. Placing all debts into one payment that is acceptable and achievable for the debtor. Credit settlement, usually refers to the terms/amounts a creditor will ( Full Answer )

What is the difference between installment credit and revolving credit?

Revolving : Like at a gas station or a department store, this is a line of credit that allows an authorized amount to be charged in a month, or billing cycle. Minimum payments are expected each billing cycle and unpaid debt ac cures. There's a rate and fees that are charged depending on how much de ( Full Answer )

What is the difference between a bank guarantee and a letter of credit?

While both being non-funded or contingent facilities i.e. they depend on the happening of a certain event, the basic difference between the two is that of the parties involved. In a bank guarantee, three parties are involved; the bank, the person to whom the guarantee is given and the person on whos ( Full Answer )

Is Standby Letter of Credit always cash backed?

Answer . no, we can issue standby letter of credit to clients with such credit facilities. although it may be backed with trust receipt depending on the credit standing of the client. cbctsdp trainee

What is Letter Of Credit?

credit is money which can be made available by any institution or persons for some purposes.

Standby letter of credit?

The Standby letter of credit serves as a secondary payment mechanism. A bank will issue a standby letter of credit on behalf of a customer to provide assurance of his ability to perform under the terms of a contract between the beneficiary

What is the difference between credit card and revolving credit?

Answer . A credit card is a type of revolving credit, whereas a revolving credit account may or may not be a credit card. Revolving credit can also include other types of accounts, such as a revolving line of credit with a bank or a home equity line of credit.

How can you get a letter of credit?

Buyer (the importer) has to contact their bank (called issuing bank) to establish a letter of credit in favor of seller (importer) through importer bank (also called advising bank) to get a letter of credit, bank will keep some marginal amount as deposit.

Different between credit control and salesperson?

Credit Control is the part of business which is responsible fornegotiation with creditors and receiving debt timely from debtors.However, a sales person is only responsible for marketing andselling the company products.

What is the difference between credit and revolving credit?

credit is any money loaned to you including cards/installments/mortgages etc and revolving indicates a line of credit or credit card which has a limit available and you can use and pay and reuse where an installment has a specific amount and you pay it off and it closes

Difference between money and credit?

Money is a solid object, once you spend it, its gone. and credit is not solid, instead kind of an iou to the bank. Basically whats happening is the bank loan you money every time you need it ( charge you for it too) and then at the end of the month you have to pay it back. also another way to carry ( Full Answer )

What is the difference between back to back letter of credit and transfer letter of credit?

back to back credit is a seller financing tool where seller goes to his bank for amendment of the master lc and get issued another lc in favor of the main supplier and also it is a LC where main buyer does not get to know that who is main supplier . Bank which issues the back to back LC undertak ( Full Answer )

What is the difference between credit and loan?

the creadit where money is exchanged taken by some one and he promises the lender to re pay later with a certain interest is called a lon whereas cradit can be of different types also

Buyers credit - Letter of credit?

A red clause letter of credit is similar to a letter of Credit which is written to state or confirm the availability of funds for a particular transaction between the seller and buyer. However, a clause is included in the letter stating that the stated amount or credit can be advanced immediately on ( Full Answer )

What is the difference between credit agency and credit bureau?

A credit agency is a company that give you credit. for example : cibc, scotia bank other credit cards. bank loans, secured loans etc.. A credit bureau, is where your credit information is kept, equifax etc. hope this helped.

Difference between credit sales and credit purchases?

credit sales are sales you have made on credit, so they still oweyou the money for that item. credit purchases are things you havepurchased from your suppliers on credit and therefore you owe themoney for

What is the difference between letter of credit letter of guarantee?

Both Letter of Credit and Letter of Guarantee are commitment to payment by the issuer of the instrument (generally a Bank). In letter of credit, the issuer has to fulfill his commitment on fulfilling the terms and conditions of the letter of credit by the beneficiary. Whereas, on the other hand, in ( Full Answer )

What is the difference between college credits and credit hours?

Each course is assigned a certain amount of credits, based on the number of classroom contact hours per week. Thus, if a course is three credits, then there are three hours of classroom contact time (three credit hours), per week through the completion of the semester.

What are the different types of letters of credit?

confirmed letter of credit ,transferable letter of credit,unconfirmed letter of credit Types of Letters of Credit: . Traveler's letters of credit, which were commonly used in eighteenth century, were the first financial instrument contains very similar characteristics with the contemporary lett ( Full Answer )

What is the practical difference if any between an irrevocable letter of credit and an irrevocable standby letter of credit?

In practical terms the standby LC should be viewed more as a commercial guarantee supported by the bank rather than the prime term of trading . A standby letter of credit ("Standby") is an irrevocable, binding undertaking by an Issuer (generally, a bank), made at the request of an Applicant (gene ( Full Answer )

What is the difference between a credit and a debt?

A credit is a plus so to say and a debit is a minus for example Say you worked for a shop and at the end of the month you invoiced someone for 100. They pay this bill so in your books your have to out threw a dr and a cr it looks like this Shop Item Cr 100 Dr 100 Not sure if I made this so you und ( Full Answer )

Difference between buyers credit and letter of credit?

Buyer's credit is extended to finance the purchase of goods orservices. A letter of credit guarantees that a payment will bereceived. If the buyer doesn't make a payment, the bank has to pay.

What is the difference between a surety bond and letter of credit?

The biggest difference between a surety bond and insurance is insurance is a two party risk transfer mechanism and a surety bond is a three party agreement. Insurance creates a pool funded by premiums from a large group of people or companies that are exposed to similar risk. Each individual or comp ( Full Answer )

Difference between bill of exchange and letter of credit?

Bill of exchange is an old fashion method of debt settlement, paperbased and is not authenticated. LC is a new method which is basedon SWIFT MT700 and is bank to bank authentication of a debtsettlement in trade. LC, by default, is bank to bank sponsorship but Bill of exchange,by default is not a ban ( Full Answer )

What is the difference between credit and finace?

Credit is spelt correctly... I think he meant spelled... But the difference is that credit is borrowing money and agreeing to pay it back and can be a part of finance. Finance is a group of disciplines that deals with money management and planning, usually in a corporate setting. It involves buyi ( Full Answer )

What is a credit letter?

A Stand by Letter of Credit is usually given by banks or financial institutions to vouch on the integrity of a seller and purchaser, acting as an intermediary. The buy and sell agreement is made between the two parties that both must uphold their part.

What is the difference between a bibliography and credits?

Credits list people involved in the making of something, a bibliography is a list of where your information came from. Also usually credits are related more to movies video games etc where bibliographies are more literature oriented

What is payment credit as a type of letter of credit?

A dispute letter to credit bureaus is written by an individual to the credit bureau over the some issue related to credit standing. The individual would need to be clear in his letter of dispute against that of the credit bureau, providing evidence where possible to proof the error on the part of th ( Full Answer )

Difference between sight letter of credit and usance?

In simplest words, A sight LC means that whenever the Bill of Exchange is presented at counter, it must be paid then and there (ofcourse if the LC docx are in order). While a Usance Bill is first presented then accepted and after that it is paid. Usance bills are usually for a period of 30, 60, 90 ( Full Answer )

What is letters of credits?

Letters of credit is a binding document that a buyer can request from his bank in order to guarantee that the payment of goods will be transferred to the seller. Basically, a letter of credit gives the seller reassurance that he will receive the payment for the goods. In order for the payment to occ ( Full Answer )

What is the difference between line of credit and revolving credit?

A line of credit is one type of revolving credit, which workssimilarly to a credit card. Both a line of credit and revolvingcredit have a set amount available to use, and when you pay down orpay off the amount, the credit is available for you to use again. Aline of credit may use collateral to secur ( Full Answer )

What is the difference between a refundable and a nonrefundable credit?

On the federal 1040 income tax return a refundable credit means that if you do not owe any past due taxes, penalties, interest or legal government debt that is in the FMS offset refund program you will receive a refund of the amount of the refundable credit. The nonrefundable credit amounts if more ( Full Answer )

What is the difference between Cash against Documents and Letter Of Credit?

In the case of foreign trade, payment is always done through banks. The supplier assigns a bank and the customer assigns a bank. The deal happens between these two banks only. Cash Against Document (CAD): The supplier produces the documentation through its bank to the clients bank, then the clien ( Full Answer )

What is the difference between restart and standby?

Restarting means the computer will power down, turn off, and start up again. Standby means it saves your current windows you have opened to its hard drive and turns off. Then when you turn it on again it starts up faster and all your progress is saved.

What difference between loan and credit?

Basically they mean the same thing. You can give someone a loan, or allow them credit which means to let them borrow money from you. However there is a slightly different use of the term 'credit' in accounting: there it means to increase in value (to reduce in valid is 'debit'). Even more confusin ( Full Answer )

What is different between debit and credit?

the main difference between debit and credit are how they are processed. when you use debit you will be asked to enter a "personal" pin or code. debit transactions have a limit of how many times you've used your debit card that day. when you use credit you are protected from liability. if someone st ( Full Answer )

What is the difference between credit repair and credit restoration companies?

Many credit repair companies look for a quick fix. Unfortunately,these tactics result in nothing more than a temporary improvementin your credit score. Think of your credit as an automobile. Amechanic may make a quick repair, but that doesn't mean that thevehicle is prepared to operate for the long ( Full Answer )

What is meaning of credit confirmation in letter of credit?

A final demand for payment letter can be a very strong letter by a company that is demanding payment from one of its debtors. Despite many reminders and requests for payment, the company has not received payment from its debtors, which causes it to write a strong letter to imply harsher actions. Fro ( Full Answer )

What are letters of credit?

A letter of credit is basically a promise to pay a certain sum of money to a seller. Letters of credit are issued by banks to see that sellers are paid as long as they deliver the goods or services required by the buyer. A letter of credit is thus a document issued by a buyer's bank to a seller o ( Full Answer )

What is the difference between free credit report and credit score?

A free credit report is a list of your debt history. It shows all of your personal information, creditors, account balances, and paid-off balances. A credit score is basically just a rating given to you by credit card companies to show your standing with them.