This is a Utilisation Request for Standby Letter of Credit to be issued by an Issuer for a Beneficiary on request by an Applicant. This utilisation request is made on behalf of the Seller against the Purchaser asking him / her to ask for a Standby Letter of Credit from the Issuing Bank. It works as a guarantee to ensure that payment for a deal is made.
This utilisation request asks for a standby letter of credit, which, is usually issued where two parties enter into an agreement or a deal, and they do not know each other’s credibility well enough.
The Bank would then issue a Standby Letter of Credit, which acts as an assurance for the parties to trust each other. In other words, the Issuing Bank acts as a guarantor for the Applicant in order to obtain a contract by assuring the Applicant’s obligation to the Beneficiary would be fulfilled, through this Letter of Credit Standby / Trade Letter of Credit.
The letter of credit, in the worst-case scenario where the Applicant escapes liability, would enable the Beneficiary to claim payment from the Bank. As the Bank is only obliged to pay only in the worst-case scenario, it is only a “Standby” Letter.
A Standby Letter of Credit is particularly important in international trading, where it would be even more difficult for companies to know each other’s credibility well, and the different laws and regulations that they are bound to.
A Standby Letter of Credit could firstly, help both parties gain trust, with the Issuing Bank involved as a guarantor; and secondly, set the responsible jurisdiction and governing laws, so as to prevent any disputes regarding the relevant laws.
This document should be carefully read by the Agent, the Seller and the Recipient of the Letter (the Purchaser).
As it is a utilisation request, details such as the proposed utilisation date, the amount and facility to be utilised, the term of the utilisation as well as the specified terms and conditions to be stated in the letter of credit should be made clear. A copy of the proposed letter of credit should be attached for reference.
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