Why Business People Like To Have A Standby Letter Of Credit

By Rosella Campbell

The majority of people who have been in business for a while know that at any moment, things can go wrong with a transaction. No matter how well they have prepared, a minor glitch can interrupt their plans. For this reason, they like having something that they can fall back on. In this way, they ensure that their investment of time and other resources is not wasted. You can get extra security with a standby letter of credit.

In the city of Dubai, lots of international trade transactions are done every day. Whether someone in the United Sates wants to purchase goods from Asia or vice versa, proof of their ability to pay sets vendors at ease. Sellers can cash the document on demand if the person who is buying their goods is unable to make payment by the date specified in their agreement.

Reasonable prices are usually attached to this type of document. It is not uncommon for banks to charge about three percent of the face value when you need it. That fee is charged for an entire year, so you can do all the transactions that you want to for that period with the assurance that your financial institution will protect you if something happens.

Qualifying for this sort of standby arrangement is relatively easy for organizations that already have a relationship with commercial banks. Collateral is necessary and this may be in the form of equipment, tools and tangible assets like these. Cash is also used and this may be in the form of fixed deposits that are held by the businesses.

Beneficiaries often choose to use a confirming bank because that allows them to save time. They have to pay a small fee for that but in the end, it is more convenient for them because they can be paid by a financial institution in their own country or neighborhood instead of waiting for payment from one overseas.

Beneficiaries do not have to go through a lot of stress to get their money when they use these letters of credit. Once the documents are presented, their funds should be payable immediately on the first request. They do not have to go through a whole lot of processing or even prove that a good relationship exists between them and the buyer.

When buyers use letters such as these, it allows them to free up their cash to be used for other important purposes in their operations. Improving cash flow is an important aspect of successfully running any organization. Improved liquidity leads to flexibility and the ability to respond quickly to changes that may occur.

Standby guarantees are helpful to businesses that need to do transactions domestically or internationally. They suit commercial teams in any industry that are closing deals with private organizations or government agencies. They provide a useful way to prove that all of your financial obligations will be honored if you receive goods from a vendor so you never have to utilize your funds for deposits.

About the Author:

You can visit www.bwtradefinance.com for more helpful information about Why Business People Like To Have A Standby Letter Of Credit.