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Differences between standby letter of credit vs commercial letter of credit
 














Standby letter of credit and commercial letter of credit are two main documentary credit types used in international trade transactions. In order to understand what letter of credit is we need to learn these two main type of letters of credit in detail. 

On my previous article I have explanied the meaning of commercial letter of credit. I have written about standby letters of credit in my web site various times as well. Definition of standby letter of creditstandby letter of credit sample in swift format and standby letter of credit types are the headings of my articles related to standby letters of credit so far. Please read these articles before continue to this page.

Table 1 : Differences between standby letter of credit and commercial letter of credit
























Common Characteristics of Standby Letters of Credit and Commercial Letters of Credit

  • Both standby and commercial letter of credit are irrevocable and conditional payment promises given by trusted financial institutions mostly by banks
  • Both standby and commercial letter of credit are independent payment mechanisms whatever contract they may base
  • Both standby and commercial letter of credit are governed by ICC's rules.
  • Both standby and commercial letter of credit are proceed via documents. They have documentary nature.
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What are the differences between standby letter of credit and commercial letter of credit? 

Differences between standby letter of credit and commercial letter of credit are discussed on this page as well as common characteristics of standby letters of credit and commercial letters of credit.
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Standby Letter of Credit


Commercial Letter of Credit





Purpose of Payment Type


Standby letters of credit are not primary payment method. Standby letters of credit are secondary payment options which means they act as a guarantee and will be utilized in case another primary payment mechanism does not work. 

Commercial letters of credit are primary payment method in international sales. This means that you open a letter of credit to your supplier to pay for the goods you buy directly via letter of credit. Your supplier will be paid by your bank just after he makes a complying presentation under a commercial letter of credit.


Governing Rules



ISP 98 and UCP 600


UCP 600


Complexity of Presentations



Relatively simple documentary requirements in order to reach the payment.



Relatively detailed and complex documentary requirements in order to reach the payment.