Payment & trade finance SBLC

Standby letter of credit (SBLC)

Not a normal means of payment but a safety net: if the buyer fails to pay on open account or deferred terms, the seller draws on the SBLC with a statement of default and simple documents. It is governed by ISP98 or UCP 600 and works much like a bank guarantee. It is used in repeat shipments to avoid opening a separate credit for each lot. Beware: online offers of “leased SBLCs” or “SBLC monetisation” are a well-known fraud.

Related terms

Letter of credit (L/C) L/C

A documentary payment method in which the buyer’s bank (issuing bank) undertakes to pay the seller against timely presentation of complying documents specified in the credit – bill of lading, invoice, certificate of analysis, certificate of origin and so on. Banks deal only with documents, not goods, so the credit terms must match the sales contract exactly and be achievable. It is the most common secure payment method for large raw material deals and first-time counterparties.

Bank guarantee (performance bond / advance-payment guarantee)

An undertaking by a bank to pay a stated amount when the beneficiary makes a demand. A performance bond secures the seller’s performance of the contract, typically for 5–10 % of the contract value; an advance-payment guarantee ensures the buyer’s deposit is refunded if the goods are not delivered. International deals usually use on-demand guarantees subject to the ICC’s URDG 758.

Open account O/A

The seller ships the goods and sends the documents directly to the buyer, who pays the invoice on a due date (e.g. 30–90 days). It is the most favourable method for the buyer and the riskiest for the seller, who manages the credit risk through trade credit insurance, factoring or a standby letter of credit. It is standard in long, trusted relationships and in some markets such as intra-EU trade.

Explained in the trade handbook

Trade handbook