Financial and contractual agreements are safer when you have a guarantee. This is the safety net you require to recover your money in case the agreement is not honored. A standby letter of credit is a perfect guarantee when handling project and transactions of any magnitude. It helps you avoid reliance on goodwill when doing business.
The industries that commonly use this as collateral include shipment, service delivery and construction. It is issued from a bank or financing institution to confirm that you will still get your payments if the contractor, supplier or service provider fails to honor his obligation. For international transactions, the letter is best issued by a financial institution that is accredited to operate in both jurisdictions.
As a beneficiary, you will not suffer any loss in case the contractor fails to deliver the goods, complete a project or meet certain conditions. The banker has evaluated the creditworthiness of the contractor and identified his ceiling. The assumption is that this contractor will make payments to the bank after it releases the money to you.
An example is a contractor engaged in Dubai with a strict construction deadline. The contract also stipulates the quality of work to be done. Delays in completing such a project would lead to huge losses. The owner has to hire another contractor to finalize an abandoned project. It is the bank that reimburses the money to cover for such breach and cushion the investor from loss.
Contractors and suppliers are likely to breach trust by failing to fulfill their obligation. There are other factors that might lead to breach of contract that are beyond the supplier. A financial crunch or delayed payment by his customers will cause failure. You are cushioned by the bank in such cases.
Some suppliers have gone out of business before fulfilling their obligations. It is extremely difficult for a client to recover his money or attach assets because of a limited jurisdiction or resources. The recovery process might require a lot of money, other resources and time. Financial institutions and banks have a legal mandate, the resources and time to recover the funds.
The assets of your contractor or supplier may be frozen because of political unrest. There are disagreements that may arise midway through the project and cause it to stall. Such circumstances would make it difficult to recover your funds. This is also the best way to deal with dishonest contractors who have no intention of fulfilling their contractual agreements.
The bank requires its client to fulfill certain conditions before granting the letter. As the claimant, you must produce evidence that the contract was bleached and you therefore deserve the compensation. It is however worth noting that such steps are taken in rare and extreme cases.
International trade uses commercial letters on a large scale while domestic trade uses standby letters. Your bank will issue the letter and give you conditions before it is released. It is prudent and safe to demand one when working on different contracts regardless of their value. You have a safety net in case something happens.
The industries that commonly use this as collateral include shipment, service delivery and construction. It is issued from a bank or financing institution to confirm that you will still get your payments if the contractor, supplier or service provider fails to honor his obligation. For international transactions, the letter is best issued by a financial institution that is accredited to operate in both jurisdictions.
As a beneficiary, you will not suffer any loss in case the contractor fails to deliver the goods, complete a project or meet certain conditions. The banker has evaluated the creditworthiness of the contractor and identified his ceiling. The assumption is that this contractor will make payments to the bank after it releases the money to you.
An example is a contractor engaged in Dubai with a strict construction deadline. The contract also stipulates the quality of work to be done. Delays in completing such a project would lead to huge losses. The owner has to hire another contractor to finalize an abandoned project. It is the bank that reimburses the money to cover for such breach and cushion the investor from loss.
Contractors and suppliers are likely to breach trust by failing to fulfill their obligation. There are other factors that might lead to breach of contract that are beyond the supplier. A financial crunch or delayed payment by his customers will cause failure. You are cushioned by the bank in such cases.
Some suppliers have gone out of business before fulfilling their obligations. It is extremely difficult for a client to recover his money or attach assets because of a limited jurisdiction or resources. The recovery process might require a lot of money, other resources and time. Financial institutions and banks have a legal mandate, the resources and time to recover the funds.
The assets of your contractor or supplier may be frozen because of political unrest. There are disagreements that may arise midway through the project and cause it to stall. Such circumstances would make it difficult to recover your funds. This is also the best way to deal with dishonest contractors who have no intention of fulfilling their contractual agreements.
The bank requires its client to fulfill certain conditions before granting the letter. As the claimant, you must produce evidence that the contract was bleached and you therefore deserve the compensation. It is however worth noting that such steps are taken in rare and extreme cases.
International trade uses commercial letters on a large scale while domestic trade uses standby letters. Your bank will issue the letter and give you conditions before it is released. It is prudent and safe to demand one when working on different contracts regardless of their value. You have a safety net in case something happens.
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