The Most Common Mistakes in Standby Letters of Credit (SBLC) – and How to Avoid Them 🚨

Hi! I’m Valentina Todorova, Customer Success Manager at CGPH Group, specialists in trade finance. Every day, I help businesses structure financial instruments that facilitate smooth international transactions.

I often see entrepreneurs and CFOs relying on SBLCs without fully understanding the details. Yet, even a small mistake can lead to serious issues, from payment delays to costly legal disputes.

Here are the most common pitfalls that can jeopardize an SBLC:

✅ SBLC ≠ Letter of Credit (LC)They may seem similar, but they serve different purposes! An SBLC is a payment guarantee, activated only in case of default, while an LC is a direct payment instrument. Confusing the two can result in misaligned negotiations and contract misunderstandings.

✅ Not sharing the SBLC text with the supplierEver had a supplier reject an SBLC at the last minute? This happens when the terms aren’t agreed upon in advance. Every supplier has specific requirements, and discussing them beforehand avoids unnecessary setbacks.

✅ Is SWIFT always the best option?Many assume SWIFT is the only way to transmit an SBLC, but for transactions under $1M, alternative methods can be faster and more cost-effective. Choosing the right channel can save time and money.

✅ Poorly structured expiration datesIf an SBLC expires too soon, the supplier might reject it. If it’s too long, it can tie up valuable credit lines. The duration must align with the nature of the transaction.

✅ Unclear drawdown conditionsIf the conditions for claiming payment are too strict, the SBLC might not be usable when needed. Clear and well-defined terms prevent disputes.

✅ Ignoring ICC regulations & accepting unfavorable jurisdictions. Overlooking ICC standards or agreeing to the supplier’s jurisdiction can create major legal risks. In case of disputes, this can mean higher costs and lengthy resolutions.

📢 Trade finance is a complex world, but having the right expertise makes all the difference. If you have questions about Standby Letters of Credit (SBLCs) or want to explore best practices, let’s connect! 📩