A Standby Letter of Credit can ensure that the beneficiary will be protected in the event of default or nonperformance under contract by another entity. An advising bank is used in addition to the issuing bank when a Standby Letter of Credit is opened to cover contracts between two parties located in different areas, as in the case of international trade.
As an exporter, you may ask the buyer to provide a Standby Letter of Credit so that you may draw upon it for any unpaid bills. In most cases a Standby Letter of Credit is not drawn upon, but it provides peace of mind that you will get paid in the event that your customer doesn’t pay you directly.
