The stand-by letter of credit is a secure payment method accepted all over the world. It is widely used in the United States (and in all the Anglo-Saxon countries), where the traditional bank guarantees cannot be issued due to the lack of security in their legal order. So the stand-by letters of credit are given to fill the regulatory gap.
Like the letter of credit, its use needs to produce adequate documentation disciplined by international regulations. Still, in this case, the financial institute acts independently. It becomes unconditionally committed to the disbursement of the sums as agreed by the contract, guaranteeing, in any case, the excellent outcome of the operation, only in the event of obligation's default between parties. This ensures administrative slenderness: when the third party takes over, the documents must be presented to the transaction's guarantor only in case of default.
The stand-by letter of credit allows companies to gain competitive advantages abroad because it provides safely operating, respecting the deadlines and the agreed processes. Unlike the different forms of documentary credit, with this instrument, goods and documents can move together, allowing exporting companies to cut the storage costs for sold goods.