Non-Performing Letter of Credit: What is it?

No matter if you are running a small business or large. You may have experienced credit risks at least one time in life. And a letter of credit may be the best solution to enable your trade relationships by overcoming the credit risk.

In this process, a bank issues a letter to an organization for a person as a guarantee of payment. But recent research shows that Non-Performing Letter of Credit works for some cases when the other payment options do not. 

Non-Performing Letter of Credit

Importers and exporters can get the amount via a Non-Performing Letter of Credit, depending on the terms and conditions.

To learn more, keep on reading the post!


What is a Non-Performing Letter of Credit?

This term is also known as a standby letter of credit. It is a written obligation of an issuing bank to pay an amount to a beneficiary. The bank makes the payment on behalf of a customer who did not pay the former.

According to experts, the Non-Performing Letter of Credit is applicable only when the letter is not liable for the validity and existence of the obligation of the customer.


Advantages of a Non-Performing Letter of Credit

  • It can help you to eliminate the essentiality of paying in advance for any product or service. Hence, you can use your funds before the payment turns into due.
  • A Non-Performing Letter of Credit is the best alternative to improve your cash flow.
  • A standby letter of credit reduces the amount to pay a beneficiary. As per the contract, there is cash collateral or other security to support the performance obligations under it.
  • A Non-Performing Letter of Credit fulfils the purpose of a bank guarantee. The payment depends upon the demand and transaction between the applicant and the beneficiary. Also, it’s up to the latter if he will accept it.



Different types of Non-Performing Letter of Credit

  • Retention Guarantees or Advance Payment Holdback under Contract Guarantees.
  • Performance Guarantees, known as Performance Bond.
  • Advance Payment Guarantees.
  • Financial Guarantees.
  • Bid Guarantees, known as Bid Bond



Parties related to a Non-Performing Letter of Credit

  • The applicant who applies to the bank for the standby letter of credit.
  • The Issuing Bank that issues the non-performing letter of credit
  • The Beneficiary for whom the letter is issued
  • Advising Bank that represents the beneficiary.



Where to contact

Oxford Credit Banque Limited (OCB) is a niche consultancy firm in London. If you need a Non-Performing Letter of Credit, get in touch with them. Visit oxfordbanque.com for more details.

Location: United Kingdom

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