Trade Instruments

Trade Instruments Explained
We are able to provide various trade and project instruments, the most commonly requested being:
● Letter of Credit (LC)
● Standby Letter of Credit (SBLC)
● Bank Guarantee (BG)

1. Letter of Credit (LC)
A Letter of Credit is a legal document issued by a bank on behalf of a buyer, guaranteeing payment to a seller upon the fulfilment of specific conditions. It provides protection to both parties in international trade transactions, ensuring that the seller receives payment and the buyer receives the goods or services as agreed upon.

LC Benefits
a. Payment security and reliability.
LCs offer a secure payment avenue, serving as a trustworthy intermediary that safeguards payments by holding funds in escrow until the LC’s terms and conditions are met, ensuring a fair and secure trade process.

b. Facilitation of global trade
LCs simplify international trade by offering a universally accepted payment method that links buyers and sellers across nations and currencies. This enables SMEs to broaden their markets and foster global business partnerships.

c. Mitigation of risk
Buyers gain assurance of payment upon document compliance, while sellers trust in guaranteed payment upon fulfilling the LC’s terms and conditions, creating a smooth and secure trade process for all stakeholders.

d. Cash flow optimisation
LCs offer the assurance of timely payment within agreed-upon timelines, facilitated by efficient processing and settlement services, ensuring the preservation of liquidity.

2. Standby Letter of Credit (SBLC or SLOC)
A Standby Letter of Credit is a legal document that guarantees a bank’s commitment of payment to a seller if the buyer, or the bank’s client, defaults on the agreement. A SBLC helps facilitate international trade between companies that don’t know each other and have different laws and regulations. Although the buyer is certain to receive the goods and the seller is certain to receive payment, a SBLC doesn’t guarantee the buyer will be happy with the goods.

SBLC Benefits
a. Mitigation of risk
SBLCs act as a safeguard in complex commercial dealings. They provide an additional layer of security by ensuring that the beneficiary is compensated if there’s a breach or failure to meet contractual commitments. This reduces the risks associated with non-performance, default, or financial uncertainties.

b. Facilitating of global trade
In today’s global business landscape, partners often operate under different legal systems. SBLCs help foster trust among these partners by guaranteeing timely payment to suppliers, contractors, or service providers. This trust-building mechanism facilitates international trade, supports business expansion, and encourages collaboration in the global market.

c. Alternative to cash deposits
Instead of tying up substantial funds in cash deposits or collateral, SBLCs offer a more flexible solution. They allow companies to ensure financial security for their contractual partners while freeing up resources for other business endeavours.

d. Credit enhancement
SBLC finance can significantly improve the creditworthiness of small and medium-sized firms (SMEs). By providing a reliable payment guarantee to their creditors or suppliers, SBLCs help SMEs develop and strengthen commercial ties. This, in turn, helps secure more favourable conditions for their business operations.

3. Bank Guarantee (BG)
Bank Guarantees are a type of financial instrument issued by a bank on behalf of a customer (usually a buyer or contractor) to a beneficiary (often a seller or supplier) as a guarantee of payment or performance. BGs are widely used in business transactions to provide assurance to the beneficiary that they will receive payment or compensation if the customer fails to fulfil their obligations.

There are several types of BG:
Bid Bond
Guarantees that a bidder will honour the terms of their bid if selected. It assures the owner that the contractor has the financial capability to undertake the project and will enter a contract if selected.

Performance Bond
Guarantees that a contractor will complete a project according to the terms of the contract.

Advance Payment Guarantee
Assures the beneficiary that if the customer fails to fulfil their obligations, the advance payment made by the beneficiary will be refunded.

Payment Guarantee
Ensures that the beneficiary will receive payment for goods or services provided. It is often used in international trade to mitigate the risk of non-payment.

Financial Guarantee
A broad category that includes guarantees issued to support financial obligations, such as loans or leases. It provides assurance to the lender or lessor that the borrower or lessee will fulfil their financial obligations.

Uses of Bank Guarantees
Bank Guarantees are a valuable tool in business transactions, providing assurance to beneficiaries and mitigating risk for customers.

International Trade
BGs are commonly used in international trade to assure the exporter of payment if the importer fails to pay. When an importer purchases goods from an exporter in another country, the importer’s bank may issue a Bank Guarantee to the exporter’s bank to guarantee payment. They are also used to secure payment for customs duties, taxes, and other obligations, providing assurance to the relevant authorities that the payment will be made.

Construction Projects
Bank Guarantees are used in construction projects to guarantee performance, payment to subcontractors, and other obligations. A contractor may provide a Bank Guarantee to the project owner to ensure that if they fail to complete the project, the owner will be compensated. They are often required by project owners as a condition of awarding a contract to ensure that the contractor has the financial backing to complete the project.

Real Estate Transactions
Bank Guarantees are used in real estate transactions to secure deposits, guarantee payment, and assure completion of the transaction according to the terms of the agreement. A buyer may provide a Bank Guarantee to the seller to assure that the deposit will be refunded if the sale falls through. They provide assurance to both parties involved in the transaction that their interests are protected.

Government Contracts
Bank Guarantees are often required in government contracts to ensure that contractors fulfill their obligations, such as completing a project on time and within budget. A construction company may provide a Bank Guarantee to a government agency to guarantee that a public infrastructure project will be completed according to the contract terms. They provide assurance to the government that the project will be completed as agreed upon.

Requirements for Trade Instruments
Blueray Capital provides business owners, commercial Directors and Finance Directors with rapid access to trade instruments and project instruments such as LC, SBLC and BG, to free up cashflow and reduce international transaction risk. We do this efficiently and at no additional cost to the client business.

Companies will need to provide detailed information on their business, their client or supplier and the terms of the transaction. This will include:
● Completed application with KYC information
● Letter of intent, offer, contract or pro-forma invoice
● Draft wording for the required instrument
● 6 months bank statements
● 3 years accounts

To receive a prompt response with an indication of terms, submit a summary of your business & trade counterparty, the transaction and trade instrument requirement by clicking on the Apply button below.