Available Instruments can apply online:

• 1. 1. Letter of Credit (LC, LC Sight): AAA-rated banks / small banks LC . Apply Now
     2. Standby Letter of Credit (SBLC): AAA-rated banks / small banks. Apply Now
     3. Bank Guarantee (BG): AAA-rate banks / small banks BG. Apply Now
     4. Performance Guarantee:  (BG): AAA-rate banks / small banks BG. Apply Now

     Documentary Letter Of Credit (DLC SIGHT)

     A Letter of Credit (LC) is a financial document issued by a bank or financial institution on behalf of a buyer. It serves as a guarantee to the seller (exporter) that they will receive payment for goods or services, provided they comply with the terms and conditions outlined in the LC.

     Here’s a breakdown of how it works and its components:

     1. Parties Involved in an LC Transaction:

     • Applicant (Buyer): The party who requests the LC from their bank to pay the seller (exporter) after certain conditions are met.
     • Beneficiary (Seller/Exporter): The party who is entitled to receive payment under the LC once they have complied with the terms and conditions.
     • Issuing Bank: The bank that issues the LC on behalf of the buyer, guaranteeing payment to the seller once the terms are met.
     • Advising Bank: The bank that advises the seller of the LC, often located in the seller’s country.
     • Confirming Bank (optional): A bank, usually in the seller’s country, that adds its guarantee to the LC, further securing payment to the seller.

     2. Types of Letters of Credit:

     • Revocable LC: Can be altered or canceled by the buyer or issuing bank without the consent of the seller.
     • Irrevocable LC: Cannot be changed or canceled without the agreement of all parties involved (i.e., buyer, seller, and issuing bank).
     • Confirmed LC: Involves an additional bank (confirming bank) that guarantees payment to the seller, in addition to the issuing bank’s guarantee.
     • Unconfirmed LC: Only the issuing bank guarantees payment, without any involvement from a second bank.
     • Sight LC: Payment is made immediately (or “at sight”) when the required documents are presented.
     • Time or Usance LC: Payment is made at a future date, typically 30, 60, or 90 days after the required documents are presented.

     3. How it Works:

     • The buyer and seller agree on the terms of sale and incorporate them into the LC.
     • The buyer requests an LC from their bank (the issuing bank).
     • The issuing bank sends the LC to the advising bank, which then notifies the seller.
     • The seller ships the goods and submits required documents (like the bill of lading, invoice, packing list, etc.) to the advising bank or issuing bank, proving that the terms of the LC have been met.
     • If the documents are in order, the issuing bank pays the seller or honors the credit at the specified time.

     4. Purpose of a Letter of Credit:

     • Risk Reduction: It helps mitigate the risk for the seller (who may worry about non-payment) and for the buyer (who may worry about receiving goods that don’t meet the agreed-upon specifications).
     • Facilitating Trade: It provides a mechanism to facilitate international transactions, especially in cases where the parties don’t have an established relationship.
     • Assurance of Payment: It provides the seller with assurance that payment will be made as long as the terms are met.

     In short, a letter of credit serves as a guarantee that the seller will be paid, provided they meet all the conditions specified in the credit. It ensures security for both parties and helps overcome potential issues related to distance, unfamiliarity, or lack of trust in international trade.

     Standby Letter Of Credit (SBLC)

      The Standby Letter of Credit (Standby LC) is a highly flexible financial instrument often used in situations where there is a need to secure a performance or payment obligation. While it serves a similar purpose to a guarantee, it’s structured differently and is often used as a backup or “last resort” payment mechanism. Here’s a deeper dive into what a Standby LC is and how it functions:

     1. Definition of Standby Letter of Credit (Standby LC):

     A Standby LC is a contingent payment instrument issued by a bank to ensure that the beneficiary (usually the seller or service provider) will be paid in case the applicant (the buyer or contract party) fails to meet their obligations. Unlike a regular letter of credit, which is primarily used in trade transactions to guarantee payment for goods, a Standby LC is often used for non-payment-related obligations like performance or warranty obligations. It acts as a backup or safety net, with the bank stepping in to make a payment if the buyer defaults on the terms of a contract.

     2. Key Differences Between Standby LC and Regular LC:

     • Purpose:
       • Regular LC: Used primarily for facilitating payment for goods or services in international trade.
       • Standby LC: Serves as a guarantee, ensuring that the bank will pay if the party (usually the buyer or contractor) fails to meet their obligations, such as payment, performance, or delivery.
     • When Payment is Triggered:
       • Regular LC: Payment is made once the required documents are presented, typically after the goods have been shipped or services rendered.
       • Standby LC: Payment is made only if the applicant defaults or breaches the agreed terms. It’s called “standby” because it remains unused unless needed, in contrast to documentary credits, which are used in normal trade transactions.

     3. Uses of a Standby LC:

     • Performance Guarantee: Used to ensure that a contractor or service provider completes a project or obligation. If they fail to perform, the bank pays the beneficiary.
     • Payment Guarantee: Similar to a payment guarantee, a Standby LC ensures that if the applicant (usually the buyer) does not make a payment, the bank will step in and pay the beneficiary (usually the seller).
     • Bid Bond/Advance Payment Guarantee: Used in construction and large contracts, where the buyer or contractor is required to submit a bid bond or guarantee a portion of an advance payment.
     • Trade Finance: Used as a backup guarantee in open account transactions, where the buyer and seller have an ongoing trade relationship but still wish to have some security in case of non-performance.
     • Complement to Other Payment Mechanisms: A Standby LC may be used alongside other trade finance instruments like documentary credits (DCs) or collections, adding an extra layer of security.

     4. How a Standby LC Works:

     • The applicant (usually the buyer or party with the obligation) requests a Standby LC from their bank (the issuing bank).
     • The issuing bank creates the Standby LC, which outlines the conditions under which the beneficiary can claim payment. It is typically “drawn” only if the applicant defaults on the contract or does not fulfill their obligations.
     • The beneficiary (the party to be protected, such as the seller or service provider) is notified of the Standby LC, and the terms under which they can make a claim.
     • If the applicant fails to perform according to the contract (for example, fails to pay or fulfill delivery terms), the beneficiary can present a demand to the issuing bank to draw on the Standby LC.
     • The issuing bank will typically require evidence of the applicant’s default (such as a notice of default or breach of contract) before paying out under the Standby LC.

     5. Advantages of a Standby LC:

     • Risk Mitigation: It provides security for the beneficiary in case the applicant defaults on their obligations, without requiring the beneficiary to chase payment or performance directly from the applicant.
     • Flexibility: Standby LCs are very flexible and can be used in a variety of scenarios such as performance guarantees, financial guarantees, and payment guarantees.
     • Enhances Trust: A Standby LC can help build trust between parties who may not know each other well, providing a level of financial security.
     • Alternative to Bank Guarantees: For parties that may not have access to or prefer not to use traditional bank guarantees, Standby LCs offer a reliable alternative.

     6. Standby LC vs. Bank Guarantee:

     • While both a Standby LC and a bank guarantee serve as a financial safety net, there are some nuances:
       • A bank guarantee is a more direct promise by a bank to pay the beneficiary if the applicant defaults, and it is typically invoked without the need to present documents.
       • A Standby LC, however, is usually document-based and requires the beneficiary to submit specified documents proving the applicant’s default before payment is made. This makes the process more formalized and often more structured than a typical bank guarantee.

     7. Example Scenario of a Standby LC:

     • Contract: A company (Buyer) contracts a contractor (Seller) to build a factory. As part of the contract, the Buyer issues a Standby LC to the Seller to guarantee payment for the project.
     • Failure to Perform: If the Buyer does not make the agreed payment or defaults on the contract, the Seller can present the required documents (proof of non-payment or default) to the issuing bank.
     • Payment: The bank will pay the Seller under the terms of the Standby LC, ensuring the Seller is not left without compensation despite the Buyer’s breach.

     8. Common Uses in Trade and Business:

     • Open Account Transactions: For ongoing trade where the buyer and seller have a trust-based relationship but still want to ensure protection in case of non-performance.
     • Government and Corporate Contracts: Often used for construction or large-scale projects as performance bonds or guarantees.
     • Real Estate: Used for securing lease agreements or other commercial transactions.

     Conclusion:

     A Standby LC is a crucial tool in both international trade and domestic business, providing a reliable mechanism for ensuring that obligations are met, and providing peace of mind for sellers, service providers, or other parties who need assurance that they will be compensated in case of default. It functions as a safety net, only being activated when needed, which differentiates it from a traditional letter of credit.

     Bank Guarantee (BG)

     While both bank guarantees and letters of credit (LCs) involve a bank acting as an intermediary to secure a transaction, they serve different purposes and are structured in different ways. Here’s a more detailed explanation to clarify the key distinctions between the two:

     1. Bank Guarantee:

     A bank guarantee is a financial promise made by a bank to cover the obligations of a client (usually the buyer) if they fail to meet the terms of a contract. In this case, the bank assumes responsibility for the buyer’s failure to pay or perform.

     • Purpose: A bank guarantee is used to secure performance or payment obligations under a contract. It is typically invoked if the buyer (or party requesting the guarantee) defaults on their obligations.
     • Triggering Event: The guarantee is called upon when the buyer fails to fulfill their contractual obligations, such as failing to make payment or deliver goods/services.
     • Payment Process:
       • If the buyer defaults, the seller (or beneficiary) can demand payment from the bank.
       • The bank will pay the seller the agreed-upon amount, regardless of whether the buyer has delivered goods or made payment.
     • Example:
       • A company (buyer) signs a contract with a contractor (seller) to build a factory. The buyer provides a bank guarantee to the contractor. If the buyer defaults on payment for the completed work, the contractor can claim the agreed amount from the bank under the guarantee.

     Key Features:

     • A bank guarantee is typically more document-based (with proof of non-performance required).
     • The bank guarantees payment if the buyer does not perform, not necessarily related to the shipment or delivery of goods.
     • It is often used for performance guarantees, advance payment guarantees, or bid bonds in construction contracts or large projects.

     2. Letter of Credit (LC):

     A letter of credit (LC), on the other hand, is a payment mechanism used to facilitate international trade. It is typically used to guarantee payment for goods or services once certain conditions are met.

     • Purpose: An LC is issued by a bank to guarantee payment to the seller once they fulfill the terms of the contract, such as delivering goods and presenting the necessary documents.
     • Triggering Event: Payment under an LC occurs only after the seller delivers the goods or services and presents the required documents (e.g., shipping documents, invoices, etc.).
     • Payment Process:
       • The buyer’s bank (the issuing bank) guarantees payment to the seller once they present the required documents proving that the contract terms were met (such as shipment of goods, delivery of services, etc.).
       • The seller is assured of payment if and only if they meet the conditions outlined in the LC. For instance, if the seller delivers the goods as agreed, the issuing bank will make the payment.
     • Example:
       • A buyer in the U.S. orders goods from a supplier in China. The buyer’s bank issues a letter of credit, guaranteeing payment to the supplier once the goods are shipped and the required shipping documents are presented to the bank.

     Key Features:

     • An LC is generally document-based, requiring the seller to submit specific documents (like a bill of lading) to prove they’ve met the terms of the agreement.
     • The bank pays the seller after delivery is confirmed by the required documents, such as proof of shipment or completion.
     • It’s primarily used in trade transactions to facilitate payment for goods or services across borders.

     Key Differences:

     Aspect	Bank Guarantee	Letter of Credit (LC)
     Purpose	Secures performance or payment if the buyer defaults.	Guarantees payment to the seller after goods/services are delivered.
     Trigger Event	Buyer fails to perform obligations (e.g., non-payment).	Seller delivers goods/services as per the agreement.
     Payment Conditions	Bank pays upon buyer’s default, without requiring delivery of goods.	Bank pays only after seller delivers goods/services and presents documents.
     Common Use	Used for performance, payment, or advance guarantees.	Used to facilitate payment for goods or services, especially in international trade.
     Documents	No delivery required; typically invoked by evidence of default.	Requires delivery documents (e.g., bills of lading) to confirm the seller has fulfilled the contract.
     Bank’s Role	Acts as a backup guarantor for non-performance or non-payment.	Acts as a payment mechanism once specific conditions are met.

     Example Scenario – Bank Guarantee:

     • Contract: A buyer hires a supplier to provide construction services, and the supplier requires assurance that they will be paid even if the buyer defaults.
     • Bank Guarantee Issued: The buyer’s bank issues a performance guarantee to the supplier.
     • Failure to Pay: If the buyer fails to pay, the supplier can claim the payment from the bank, and the bank will cover the cost.

     Example Scenario – Letter of Credit:

     • Contract: A buyer and seller agree on the sale of goods in an international trade transaction. The buyer opens an LC in favor of the seller to guarantee payment after shipment.
     • Letter of Credit Issued: The buyer’s bank issues the LC to the seller’s bank, detailing the required documents (e.g., bill of lading, commercial invoice).
     • Goods Delivered: Once the seller ships the goods and submits the required documents to the bank, the bank makes the payment to the seller, ensuring the transaction is completed.

     Conclusion:

     • Bank Guarantee: More commonly used for securing performance obligations or as a fallback in case of non-performance or non-payment.
     • Letter of Credit (LC): Primarily used as a payment guarantee in international trade, ensuring the seller will be paid once goods are delivered and the required documents are presented.

     The main distinction lies in the timing of the payment: a bank guarantee is paid when the buyer fails to meet their obligations, while an LC ensures payment after the seller fulfills the terms of the contract, such as delivering goods or services.

     Performance Guarantee

     Performance guarantee and how it works in the context of contracts and corporate obligations.

     What is a Performance Guarantee?

     A performance guarantee is a type of bank guarantee or surety bond that ensures the performance of a contractor, supplier, or service provider in fulfilling their contractual obligations. Essentially, it acts as a safety net for the project owner (the beneficiary) if the contractor (or the party who is supposed to deliver goods/services) fails to meet the agreed terms of the contract. This type of guarantee assures the project owner that the work will be completed as per the contract, or that they will be compensated for any failure to perform.

     In the context you’re describing, it refers to a commitment made by a corporate entity (or a bank on behalf of the contractor) to assume responsibility for ensuring that the contractor completes the contract as specified. If the contractor fails to perform (whether by not completing the project or not adhering to the terms), the guarantor (the corporate entity or the bank) will step in and cover the costs of completing the project or compensating the project owner.

     Key Aspects of a Performance Guarantee:

     1. Purpose: A performance guarantee is used to ensure that a contractor or supplier fulfills all contractual obligations. These obligations could include the delivery of goods, completion of work, or meeting specific service standards. The guarantee protects the buyer or project owner in case the contractor fails to meet these requirements.
     2. Parties Involved:
        • Principal: The contractor or supplier who is obligated to perform under the contract.
        • Beneficiary: The party receiving the benefit of the guarantee, typically the project owner, client, or buyer.
        • Guarantor: Often a bank or insurance company, the entity that provides the performance guarantee and is liable to pay the beneficiary if the principal fails to perform.
     3. Enforceability: A performance guarantee is enforceable in the sense that if the contractor fails to perform or meet the contract’s terms, the project owner (the beneficiary) can claim compensation from the bank or insurance company that issued the guarantee. This could cover the costs of completing the work, rectifying defects, or paying for any damages.
     4. Conditions for Claiming: For a claim to be made under a performance guarantee, the beneficiary must typically show that the contractor has failed to perform according to the contract terms. This often requires documentation or evidence that the contractor has not fulfilled their obligations as specified in the agreement.

     How Does a Performance Guarantee Work?

     • Issuance: When a contractor signs a contract for a project (for example, construction, services, or goods delivery), the project owner may require a performance guarantee. The contractor may either have a bank or financial institution issue the performance guarantee on their behalf, or the contractor may personally assume the guarantee. The guarantee is issued for a specified amount, often a percentage of the contract value (commonly between 5-20%).
     • Contract Failure: If the contractor fails to meet their obligations (e.g., not completing the project on time, substandard work, or failure to deliver), the project owner can make a claim under the performance guarantee.
     • Claim and Payment: Upon receiving the claim, the guarantor (usually the bank or insurer) will review the evidence. If the claim is valid, the guarantor will compensate the project owner for the losses incurred due to the contractor’s failure to perform. The amount typically paid is the value of the contract or the portion of the work that has not been completed or delivered.
     • Completion of Work: In some cases, if the contractor fails to complete the project, the guarantor may also assist in ensuring the completion of the project by either providing the necessary funds or directly hiring another contractor to finish the work.

     Types of Performance Guarantees:

     • Bank Performance Guarantee: A financial institution guarantees the performance of the contractor. The bank is responsible for paying the beneficiary if the contractor defaults.
     • Insurance Performance Bond: Similar to a bank guarantee but issued by an insurance company, ensuring the contractor’s performance.
     • Corporate Performance Guarantee: A corporate entity (not a bank) might directly guarantee the performance, often used in construction, service contracts, or when a parent company guarantees the performance of a subsidiary or contractor.

     Example Scenario:

     Let’s say there is a construction company (the contractor) that is hired to build a bridge. The company enters into a contract with a government agency (the beneficiary) to complete the bridge within a set period.

     • As part of the contract, the government agency requires the contractor to provide a performance guarantee, which could be in the form of a bank performance guarantee.
     • If the contractor fails to complete the bridge on time or delivers substandard work, the government agency can call on the performance guarantee.
     • The bank that issued the guarantee will compensate the government agency for the costs incurred in completing the bridge or for the damages caused by the contractor’s failure.

     Advantages of Performance Guarantees:

     1. Risk Mitigation: The performance guarantee reduces the risk for the project owner because they have a financial fallback if the contractor fails to deliver.
     2. Trust: It builds trust between parties, especially in high-stakes contracts like construction projects, where performance risks are high.
     3. Security: It provides security to the contractor as well, since having a performance guarantee might make it easier for them to win the contract, knowing that their ability to perform is backed by the guarantee.

     Conclusion:

     A performance guarantee is a commitment made by a third party (such as a bank or insurance company) to cover the financial risks if a contractor fails to perform the terms of a contract. It’s used to ensure that the work will be completed, or that the project owner will be compensated if the contractor defaults. Unlike a letter of credit, which typically involves payment for delivered goods, a performance guarantee is about ensuring that a contractor’s obligations (whether delivery, performance, or other terms) are met. If not, the guarantor compensates the beneficiary.