A standby letter of credit is a specialized credit which does not generally involve specific shipments of merchandise. Instead, it is used to support the performance or fulfillment of contractual terms. A standby is generally drawn against only if there is a failure to perform on the part of the account party. The use of standbys is derived from a federal regulation that prohibits US national banks from extending guarantees. Exporters use bankers' acceptances to refinance the terms extended to customers.
Importers use bankers' acceptances to finance cash payments to suppliers.
It is short-term draft drawn by an exporter or importer on its bank and accepted by that same bank. Top of page Export Credit Insurance Donald Metcalf, Maryland-Netherlands Credit Insurance Export credit insurance covers nonpayment by your buyers due to insolvency. Coverage may be written to include all sales or be limited to key accounts. Once credit limits are established, the policy provides protection in case the client is unable to pay, as well as adding substantial value to credit controls and decreasing the chances of suffering bad debt losses. A documentary collection is simply a bank cover letter that accompanies shipping documents to an overseas buyer's bank.