standby letter of credit

Definition

A type of statement that is presented to a seller saying that if the buyer of an item fails to pay, that buyer's bank will make the payment on the buyer's behalf. These letters tend to help eliminate risk to the seller in that they will be paid for their item in one manner or another, either from the buyer or from the bank that has issued the letter of credit.

Use this term in a sentence

You may want to ask for a standby letter of credit if you are doing business with someone that you do not know well.

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We had a standby letter of credit and that made me happy because it was just a little more assurance that everything would work out.

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Even though the large multinational company doubted the ability of Sam to actually make payment on his order upon delivery, a standby letter of credit assuaged those concerns.

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standby commitment advance payment bond