standby letter of credit
- A document issued by a bank that guarantees payment to a third party in the event that the bank's customer fails to meet their obligations, provided that the third party can provide evidence of this non-compliance
- To ensure the supplier would be paid if the buyer defaulted, the buyer secured a standby letter of credit from the bank.
- If the contract is breached, the company can claim the amount from the standby letter of credit, providing evidence of the breach.
- Though hoping to never use it, the company acquired a standby letter of credit from the bank to assure their vendors they would receive payment even in case of default.
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