Standby Letter of Credit

Standby letter of credit is a guarantee and is mainly used in USA where according to local laws American Banks are not permitted to issue guarantees. Standby LC differs from a documentary letter of credit in that the latter requires “performance” while the former requires “non-performances” i.e. under a documentary letter of credit the contracting party has to fulfill the terms of the credit by making shipment and submitting all the required documents complying with the terms of the credit while under a standby LC the beneficiary will be entitled to payment provided by the contracting party fails to complete the terms of the contract.

Sight Bill

A sight bill of LC at sight is a bill of exchange which is expressed to be payable on demand, or at sight, or on presentation or when no time for payment is specified.in a sight bill it is the drawer who is primarily liable to the holder until it is paid by the Drawee.

Usance Bill

Usance bill is a bill expressed to be payable otherwise than on demand. It may, therefore, be payable 30, 60, 90 or 120 days etc after date or after sight according to the terms mutually agreed upon by the seller and buyer. In a Usance bill the drawer is primarily liable to the holder until it is accepted by the Drawee. The Drawee is known as the Acceptor and becomes primarily liable to the holder, while the drawer and the endorses become secondarily liable to the holder as guarantors.

Documentary letter of credit

D/A Bill

DA Bill (Documents Against Acceptance Bill) is a Usance bill, which is accompanied by a commercial documents consisting usually of a documents consisting usually of a document of title to the goods such as a bill of lading or railway receipt and invoices, certificate of foreign etc. Instructions are then given by the drawer that the documents are to be delivered against acceptance of the bill by the Drawee.

D/P Bill

DP Bill (Documents Against Payment Bill) is a bill accompanied by commercial documents with instructions from the drawer that the documents are to be delivered to the Drawee only against payment. The Usance period in this case is usually sufficient to cover the voyage period of the vessel carrying the goods.

Types of Letter of CreditInternational TradeLCStandby Letter of Credit Standby letter of credit is a guarantee and is mainly used in USA where according to local laws American Banks are not permitted to issue guarantees. Standby LC differs from a documentary letter of credit in that the latter requires “performance” while the former requires “non-performances”...Investment analysis basics