De Micco & Friends assists in the monetization process of SBLCs by taking care for the due diligence, KYC of all involved parties, verification of documents, contracting between facilitators, beneficiaries and contractors and as paymaster for the fees. Our law firm coordinates seller, buyer as well as the beneficiaries and the involved banks from the first step until the closing and the delivery of the SBLs. However, we never recommend suppliers of SBLCs and we don't connect they buyers to the providers.
The Standby Letter of Credit (SBLC)
A Standby Letter of Credit (SBLC) is a payment guarantee that is issued by a bank or financial institution by a SWIFT MT760 message and is used as payment for a client in the case that the applicant defaults. A SBLC can be utilized within a wide range of financial and commercial transactions. They are very similar to Documentary Letter of Credits (DLC) but are different in that a Standby Letter of Credit (SBLC) only becomes usableif the applicant defaults. In this case, the beneficiary of the SBLC can place a draw and demand the payment.
A Standby Letter of Creditrequiresthe presentation of specific documents agreed upon in the terms and conditions of the SBLC. Without the specific documents, payment cannot be made.
The SBLC protects the seller/exporter by getting them paid and protects the buyer/exporter in the case that the seller never ships the goods ordered, ships them damaged, or ships the goods not as agreed upon in the contract.
A SBLC is an flexible financial instrument which makes it a good option for a variety of financial businesses.
The Standby Letter of Credit serves a different function than the commercial letter of credit or Documentary Letter of Credit (DLC).The Documentary Letter of Credit (DLC) is a primary payment instrument for a transaction. The Standby Letter of Credit (SBLC) serves as a secondary payment instrument.
Standby Letters of Credit (SBLC) are usually issued by banks to guarantee financial obligations, to assure the refund of advance payments, to support performance and bid obligations, or to assure the completion of a sales contract. The Standby Letter of Credit always has an expiration date (f.e. one year)
The Standby Letter of Credit is often used to guarantee contract performance or to strengthen the credit worthiness of a client. If payments are made in accordance with the suppliers’ terms and conditions, the Standby Letter of Credit (SBLC) would not have to be drawn on. The seller goes to directly to the customer for payment.
If the client is unable to pay, the seller presents the documents to the issuing bank for payment.
The Standby Letter Of Credit (SBLC) is governed by a set of guidelines known as the Uniform Customs and Practice (UCP 600), which was first created in the 1930s by the International Chamber of Commerce (ICC).
The SBLC monetization procedures
1. Application
Filling of the Standby Letter of Credit (SBLC) Purchase Application
2. Issuing of a Draft
A draft of the Standby Letter of Credit (SBLC) will be created for the client and his seller/supplier/exporter to review.
3. Draft Review and Opening Payment
a) Finalize the draft between buyer and the seller/exporter and sign off on the draft (changes are free of cost).
b) Issuing of a payment invoice for the SBLC fees, which client has to pay on a trust account
c) After receiving the wire payment of the buyer to the trust account, the provider will release the finalized Standby Letter of Credit (SBLC) to the bank for issuance and delivery.
d) After delivery of the SBLC and confimation of the receiving bank the paymaster will payout the fees to te provider
4. Issuance
In the most cases the bank will issue the Standby Letter of Credit (SBLC) within 72 hours of release.
Once issued, a copy of the SBLC will be emailed to the client as it is transmitted by SWIFT, including the reference number of the SBLC.
Clients seller’s bank should be able to receive and confirm the Standby Letter of Credit (SBLC) transmission soon thereafter.
5. Presentation of Documents
Once the seller/exporter has prepared and loaded all goods for shipment, they must send the specified documents for that particular shipment to their own bank.
Their bank will then forward the documents to the clients’ bank, and the provider will email copies of the presentation and all of the documents that were submitted by the seller/exporter to the client for review and approval.
6. Payment of Goods
Before client’s bank can release the original documents, the provider must receive payment for the presentation.
Once the provider have received payment, he co-sign the documents to the client and overnight them to the client’s freight forwarder or to whomever he wishes. This completes the transaction.
SWIFT SERVICES, SWIFT MT799, (POF) (RWA) (BCL) (Pre-Advice)
Ready Willing and Able Letter (RWA)
A Ready Willing and Able Letter (RWA) is a document issued by a bank or financial institutionfor their clients. It demonstrates the intent and capability of the clients to enter into a financial business transactionboth legally and financially. After being issued, the Ready Willing and Able Letter (RWA)is sent to the beneficiary via MT799SWIFT message.
Proof of Funds Letter (POF)
A Proof of Funds Letter (POF) is a document that assists the seller in knowing that the buyer has cash funds available. It shows that these funds are not only legitimate but also obtainable.
A Proof of Funds Letter (POF) is often required at the beginning of negotiations between parties who haven't worked together in the past. The POF not only shows that the buyer has cash in the bank but also can help show the seller how serious the buyer is in doing a deal. After issued, the Proof of Funds (POF) Letter is sent to the beneficiary via MT799 SWIFT message.
Bank Comfort Letter (BCL)
TheBank Comfort Letter (BCL) or as it is sometimesreferredto, a Bank Confirmation Letter is a letter from a bank or financial institutionconfirming the intent and capability of the clients to enter into a financial business transactionboth legally and financially. The Bank Comfort Letter officially vouches for the fact that the borrower (an individual, company or organization)is eligible to borrow a specified amount of funds for a specified purpose.
Pre-Advice Letter
When it comes to Letters of Credit, at the request of anapplicant, theissuing bankmay send a Pre-Advice Letter ofissuanceand/oramendmentof the particular letter of credit. A pre-advice is usually marked with a reference such as “full details to follow”. Unless otherwise stated, the Pre-Advice Letter irrevocably commits theissuing bankto issue/amend the letter of credit as stated inthe said Pre-Advice Letter.
The Swift Services Closing Process
1. Applicationat Provider Filling of the Swift ServicesApplicationwith the documents for the client*s deal. (Pro Forma Invoice, SPA, Contract, Agreement, etc.)
2. Issuing of a Draft. A SWIFT MT799 draft of the Swift Letter will be created for the client and his beneficiary to review and confirm.
3. Draft Review and Opening Payment
a) Finalize the draft between you and your beneficiary and signoff on the draft (changes are free of cost).
b) We issue you a payment invoice for the Swift Letter, which you arrange to pay.
c) Once the provider receives client‘s wire payment, we will release the finalized Swift Letter to the bank for issuance and delivery.
4. Issuance
Usually the bank will issue the Swift Letter within 72 hours of release. Once issued, a copy of theSwift Letter will be emailed to you as it is transmitted via SWIFT MT799, including the reference number of the Swift Letter. The client‘s seller’s bank will be able to receive and confirm the Swift Letter transmission soon thereafter.
Fees, process and timing
1. Legal fee, project setup, check of a SBLC purchase contract between providers, buyers and beneficiaries
Fix fee: 25.000 Euro
2. Paymaster fee (1,5% of the SBLC volume): Payment of SBLC purchase price to paymaster account (max 5 days after SBLC purchase contact signing)
3. After payment delivery of the SBLC to the receiving bank
4. After delivery of the SBLC pay out of purchase price to provider
5. Payment of 1% fee to lawyers, pay out by paymaster
Our Clients
- Supplier and buyer of energy products, oil and gas contractors
- Capital market Investors and trader of capital market instruments
- Insurances
Please contact us for further information about SBLC monetization.
LAWYERS & AUDITORS
