Standby Letter of Credit

The Standby Letter of Credit is a document that serves as security for the obligations of the issuing bank under a specific agreement. It is an irrevocable letter of credit that is payable upon the beneficiary's demand via facsimile, tested telex, or authenticated swift. The document starts with a quote and includes the issuing bank's name, the beneficiary's name, and a greeting to the recipient.

 

The detailed description of the document can be divided into two parts: the entire document and each section of the document.

 

The entire document: The Standby Letter of Credit is established by the issuing bank in favor of the beneficiary to secure the obligations of the applicant under a specific agreement. It has a maximum amount that can be drawn upon by the beneficiary. The letter of credit is effective from a specific date and expires on a specific date. The issuing bank will be released from its obligations under the letter of credit on the day following the expiry date. The beneficiary is required to return the original letter of credit to the issuing bank within 7 days after the bank's obligations are terminated. The letter of credit is subject to the 'evergreen' clauses, which means it can be automatically extended for a further year and thereafter, annually, unless the issuing bank notifies the beneficiary otherwise.

 

Each section of the document: The document contains several sections that outline the conditions and requirements for the beneficiary to make a demand for payment. The demand must be in writing and include the standby letter of credit number, the currency and amount demanded, and a statement that the amount demanded is due under the overdraft facilities granted to the applicant. The demand should not include any amount in respect of any other advances granted after the issuing bank has determined its liability. The document also specifies whether partial payments and multiple presentations are allowed. All bank charges are the responsibility of the applicant. The letter of credit is personal to the beneficiary and cannot be assigned to any third party. The beneficiary's rights under the letter of credit are not enforceable by any third party. The issuing bank has the right to determine its liability under the letter of credit, and its liability will be determined upon the receipt of its written notice by the beneficiary. The letter of credit is subject to the laws of the jurisdiction state and the International Standby Practices 98 published by the International Chamber of Commerce.

 

In summary, the Standby Letter of Credit is an important document that provides security for the obligations of the issuing bank under a specific agreement. It has specific conditions and requirements for the beneficiary to make a demand for payment, and it is subject to the laws and practices of the jurisdiction state.

How to use this document?

To use the Standby Letter of Credit, follow these steps:

1. Provide information: Enter the issuing bank's name, the beneficiary's name, and the date of the letter of credit. This ensures that the parties involved are clearly identified.

2. Specify the maximum amount: Clearly specify the maximum amount that can be drawn upon by the beneficiary. This ensures that both parties are aware of the limit of the letter of credit.

3. Determine the effective and expiry dates: Specify the effective date and expiry date of the letter of credit. This ensures that both parties are aware of the period during which the letter of credit is valid.

4. Understand the 'evergreen' clauses: Familiarize yourself with the 'evergreen' clauses, which automatically extend the letter of credit for a further year and thereafter, annually, unless the issuing bank notifies otherwise. This ensures that you are aware of the automatic extension of the letter of credit.

5. Make a demand for payment: If you are the beneficiary and you need to make a demand for payment, ensure that your demand is in writing and includes the required information, such as the letter of credit number, the currency and amount demanded, and a statement that the amount demanded is due under the overdraft facilities granted to the applicant. This ensures that your demand is valid and can be honored by the issuing bank.

6. Understand the conditions for payment: Familiarize yourself with the conditions for payment, such as whether partial payments and multiple presentations are allowed. This ensures that you understand the requirements for receiving payment.

7. Comply with the laws and practices: Ensure that you comply with the laws of the jurisdiction state and the International Standby Practices 98 published by the International Chamber of Commerce. This ensures that you do not violate any legal requirements.

By following these steps, you can effectively use the Standby Letter of Credit to secure the obligations under a specific agreement.