Which is better; standb y Letter of credit or b ank Guarantee?
A standby letter of credit or SBLC and bank guarantee is very similar and mostly used while making an international transaction.
But they also used as prove to show your access to cash on a short notice for U.S. sales, purchases and transactions.
But facts have shoes that in case of making purchases a bank guarantee provide you more protection.
bank risks: Even though in both cases of SBLC bank guarantee, a bank need to face certain risk but the amount of risk increase with bank guarantee as it offer more protection.
An automatic approval is not option for these kinds of documents.
Because of the involved risk the bank will process the request depending on your credit standing.
Provided simiLarity: The main similarity between the SBLC and bank guarantee is for the item you purchase they will give payment guarantee to the seller.
So if you are a seller then to ensure the payment for the items you sold, you can ‘call in’ the letter of credit or bank guarantee.
ď‚šWhen you buy something and do not make a timely payment, then the seller can contact the bank and ask to act on the SBLC or bank guarantee.
ď‚šThese kinds of document become very popular for due to the uncertainty of international sales and currency exchanges.
Protection deference: ď‚š Even if the main purposes of both documents are the same but between them a legal difference can be seen.
ď‚š A SBLC only protects the seller, where a bank guarantee protects both seller and the buyer.
ď‚š In case of a seller both options are fine but if you are a buyer a bank guarantee will protect you in cases of not receiving the purchase item or if the item is damaged in the time you receive.
Performance difference: In case of international sales, the most preferred way is choose by the sellers is SBLC or standby letter of credit.
And the reason for this, in case of SBLC a seller gain a fast, guaranteed payment, including currency conversion, if it is needed, direct to their bank account without facing any problem.
But this is not the same with a bank guarantee.
ď‚šA bank guarantee is only triggered when either the seller or the buyer cause a non-performance by not paying in time in case of buyer and in case of seller sending damaged item or not sending the purchased item at all.
So unless it’s triggered a seller will not have the same privilege as the standby letter of credit.