Q&As

What is the difference between a standby letter of credit and a letter of credit?

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Published by a UUÂãÁÄÖ±²¥ Banking & Finance expert
Published on: 03 July 2018
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This Q&A considers the differences between a standby letter of credit (SBLC) and an ordinary letter of credit (CLC), sometimes also referred to as a commercial, documentary or trade letter of credit.

For the nature of a CLC or SBLC, see Practice Notes:

  1. •

    Characteristics of commercial letters of credit,

  2. •

    Commercial letters of credit—structure and parties

  3. •

    Characteristics of standby letters of credit

  4. •

    ICC standard rules and practices for use with standby letters of credit—UCP and ISP

Summary

The principal difference between a SBLC and a CLC is the type of event that will trigger a payment under the letter of credit.

A CLC payment is normally triggered where the seller of goods or services in an international sale or supply agreement has performed its obligations and the buyer pays through a CLC opened at the inception of the agreement as an agreed method of making payment of the price. There is no nexus between payment under the CLC and any default under

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Jurisdiction(s):
United Kingdom
Key definition:
Standby letter of credit definition
What does Standby letter of credit mean?

Used in some jurisdictions to describe an on demand performance bond.

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