China -  Chinese law firm

What is a standby letter of credit?

(a) A standby letter of credit is a letter that is established by a seller in favor of a buyer that may only be drawn on if the seller is unable to complete performance. This acts as an insurance policy for contracts which require a longer period of time to complete. These types of letters are more expensive, as banks do not receive an interest in the subject matter of the contract and are at risk of loss.

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