Standby Letter of Credit is a form of guarantee such as a demand guarantee. Used as security for a contingent event i.e. an importer failing to honour the exporter’s invoices under open account – the importer claims against the standby letter of credit.
A guarantee issued by a bank, on behalf of a buyer that protects the seller against non-payment for goods shipped to the buyer. The buyer pays the seller directly for the goods and only if the buyer fails to pay does the seller claim under the Standby Letter of Credit.