LSBLC/BG is a guarantee of payment issued by a bank on behalf of a client that is used as "payment of last resort" should the client fail to fulfill a contractual commitment with a third party. Standby letters of credit are created as a sign of good faith in business transactions and are proof of a buyer's credit quality and repayment abilities.
The LC acts as a guarantee for payment. Also, it can be termed as a condition undertaking given by a bank to the exporter at the importer’s request to effect payment up to a certain amount within the stated time against presentation of specified documents. It also must comply with the terms of the letter of credit. The letter of credit is governed by International Chamber of Commerce. (ICC).
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