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  • Trade Policy Review: Saudi Arabia March 3, 2021
    The third review of the trade policies and practices of Saudi Arabia takes place on 3 and 5 March 2021. The basis for the review is a report by the WTO Secretariat and a report by the Government of Saudi Arabia.
  • Civil society call for fishing subsidies deal welcomed by Dr Ngozi and negotiations chair March 1, 2021
    Director-General Ngozi Okonjo-Iweala welcomed civil society’s plea for a successful conclusion to the fisheries subsidies negotiations, illustrated through a fish ice sculpture set up by a coalition of non-governmental organizations (NGOs) in front of the WTO headquarters on 1 March. Dr Okonjo-Iweala visited the sculpture accompanied by the chair of the negotiations, Ambassador Santiago Wills […]
  • Twelfth Ministerial Conference to take place in Geneva in late 2021 March 1, 2021
    WTO members have agreed that the organization’s Twelfth Ministerial Conference (MC12) will take place in the week of 29 November 2021 in Geneva, Switzerland. The timing and venue were endorsed at a meeting of the WTO’s General Council on 1 March.
  • DG Okonjo-Iweala: WTO can deliver results if members “accept we can do things differently” March 1, 2021
    Addressing the WTO General Council immediately after taking office on 1 March, Director-General Ngozi Okonjo-Iweala called on members to “do things differently” to achieve reforms necessary to keep the WTO relevant, starting with swift action to curb harmful fisheries subsidies, and to help scale up COVID-19 vaccine production and distribution. The new head of the […]




The Standby letter of credit is suitable when an Exporter have an established relationship, characterised by a regular volume of trade, with an Importer. In this case, there is a clear need for flexibility as many orders are likely to be amended during any given fiscal year. From this perspective, using a classic letter of credit can be burdensome, time consuming and costly since each amendments requires the approval of the applicant and the issuing bank which will charge amendment fees accordingly.


Needless to say that, Sellers who trade on an open account basis with their regular clients, still need to cover the risk of non-payment.


This is where the letter of credit Standby represents the best solution, as the amount of documentation is particularly limited and the risk of non-payment for the exporter inexistent.


The Standby letter of credit  is based on two main sets of rules, the Uniform customs and practice for documentary credit (UCP 600) developed by the International Chamber of commerce as well as, the International Standby practice (ISP98) developed by the Institute of International Banking Law and practice.


The figure below depicts the Standby letter of credit process.


Standby letter of credit


Step 1:


After a while, the Seller decides to trade with an Importer on an open account basis providing that a Standby letter of credit is issued.


Step 2:


The buyer asks his bank to issue a Standby letter of credit


Step 3


The issuing bank informs the advising bank (seller’s bank) that a Standby letter of credit has been issued.


Step 4

The advising bank or local bank informs the Exporter that he is the beneficiary of a Standby letter of credit.

If the buyer has some concerns about the reliability of the issuing bank (exotic country), he can ask the advising bank to confirm the Standby letter of credit and become the confirming bank.

By doing so, the confirming takes on the obligation to honour the payment instead of the issuing bank.


Step 5 A:

The Exporter organise the shipment of the goods based on what has been agreed with the buyer.

In turn, the buyer pays following the terms of the sales contract (at sight, deferred payment, time draft, etc.). Since the payment has been made in compliance with the agreement, the seller will not use the Standby letter of credit.


Step 5 B:

Unfortunately, the buyer did not honour his engagement to pay despite several reminders. In this case, the Exporter provides the documents requested in the letter of credit Standby which prove that the goods have been delivered and the payment has not been made.


Step 6:

The bank (issuing bank of confirming bank) processes the payment to the buyer since he is the beneficiary of the letter of credit Standby.


Step 7


The Issuing bank debits the buyer’s account.


As you can see, the Standby letter of credit process is less formalistic than the classic letter of credit. Indeed, sometimes the seller might be asked to provide a single document. However usually, the documentation requirement can include:


– Copy of unpaid invoices

– Draft,

– Copy of Bill of lading

– A written statement signed by the Exporter, which indicates that he did not receive the payment


In addition, the Standby letter of credit is usually less costly than the classic letter of credit. Moreover, it represents a more flexible tool for the buyer who can request to amend several orders, as this does not impact the standby letter of credit.


It worthwhile noticing that given that with a Standby letter of credit, the risk of non-payment is inexistent, there is no need to purchase an Export credit insurance.

For more International trade payment methods, please click on the links below