Standby Letters of Credit are not “proof of money.” They are contingent payment undertakings. Wording is the whole game. If the standby is drafted loosely, the beneficiary cannot draw. If it is drafted aggressively, the applicant can trigger disputes, higher issuance costs, or outright refusal by the issuing bank’s compliance and credit teams.
In practice, “SBLC wording” is the combination of (1) the standby text, (2) the presentation documents, and (3) the rule set chosen in the instrument. The rule set changes how terms like “presentation,” “original,” “notice,” “dishonor,” and “time for examination” are interpreted.
ISP98 was designed specifically for standby practice. It is usually the cleanest choice for classic standby structures such as payment standbys, performance standbys, bid bonds, and advance payment support.
UCP 600 was designed for documentary credits. It can still be used for standbys, especially where parties want documentary credit style document examination standards. It tends to fit better when the standby requires trade-like documents.
URDG 758 is for demand guarantees. Many markets use guarantees rather than SBLCs for similar risk transfer. If you are really drafting a demand guarantee, URDG is usually the cleanest rule set, especially for on-demand structures.
Do not pick rules based on what “sounds official.” Pick them based on the document set you can actually present, the bank’s comfort, and what is standard in your industry and jurisdiction.
Regardless of rule set, most disputes come from a handful of issues: unclear draw conditions, messy definitions, ambiguous expiry and presentation place, and vague statement requirements.
| Block | What To Specify |
|---|---|
| Applicable Rules | State clearly: “This standby is subject to ISP98” or “This credit is subject to UCP 600” or “This guarantee is subject to URDG 758.” |
| Amount and Currency | Exact amount, currency, whether partial drawings are permitted, and whether multiple drawings are permitted. |
| Expiry | Expiry date and the place for presentation. If the standby is evergreen or has automatic extension, define notice mechanics. |
| Availability | “Available by payment upon presentation of the documents listed below” and the presentation channel (counter, courier, SWIFT, or other method permitted). |
| Drawing Documents | List the required documents exactly. Keep it minimal. Over-documenting increases non-complying presentations and delays. |
| Demand Statement | The specific wording the beneficiary must state. If it is too specific, small variations cause rejection. If it is too vague, the applicant may resist issuance. |
| Governing Law and Jurisdiction | Often included outside the rules. If included, keep it consistent with enforcement practicality and the issuing bank’s policy. |
| Charges | Who pays bank charges and confirmation fees. Default assumptions vary and can cause friction late. |
The examples below show common patterns. These are not “one size fits all.” Banks will apply house formats, SWIFT field constraints, and internal risk policy. Use these as concept examples only.
| Section | Sample Wording |
|---|---|
| Applicable Rules | This standby letter of credit is subject to ISP98. |
| Undertaking | We hereby issue this irrevocable standby letter of credit in favor of [Beneficiary Name and Address] up to the aggregate amount of USD [Amount] (the “Stated Amount”). |
| Availability | Available by payment at sight upon our receipt of a complying presentation. |
| Expiry | This standby expires on [Date] at [Place for Presentation]. |
| Documents Required | (1) Beneficiary’s signed demand for payment stating: “We demand payment under Standby Letter of Credit No. [●] for USD [●].” (2) Beneficiary’s signed statement substantially in the following form: “The Applicant has failed to pay the amount due under [Underlying Agreement] dated [●] in the amount of USD [●] when due.” |
| Partial Drawings | Partial drawings are permitted. |
| Bank Charges | All charges outside the issuing bank are for the account of the Applicant. |
A performance standby usually supports non-monetary obligations. The beneficiary draws based on a statement of breach, not by presenting invoices or shipping documents. Keep the statement short and avoid requiring “proof” that is hard to deliver.
| Section | Sample Wording |
|---|---|
| Applicable Rules | This standby letter of credit is subject to ISP98. |
| Purpose | This standby supports the performance obligations of [Applicant] under [Contract] dated [●]. |
| Documents Required | (1) Beneficiary’s signed demand for payment. (2) Beneficiary’s signed statement substantially in the following form: “The Applicant is in breach of its obligations under [Contract] dated [●], and we are entitled to draw under this standby.” |
| Reduction | Any reduction conditions, if agreed, should be stated clearly, including whether reduction requires issuer consent or is automatic upon certain events. |
If the instrument is a demand guarantee rather than a standby, URDG 758 is commonly used. The draw often requires a demand and a statement indicating in what respect the applicant is in breach.
| Section | Sample Wording |
|---|---|
| Applicable Rules | This guarantee is subject to URDG 758. |
| Guarantee Amount | Up to the maximum aggregate amount of [Currency] [Amount]. |
| Expiry | Expiry date: [Date]. Place for presentation: [Place]. |
| Demand Documents | A demand for payment accompanied by a statement by the Beneficiary indicating in what respect the Applicant is in breach of its obligations under [Underlying Contract] dated [●]. |
| Partial Demands | Partial demands are permitted up to the guaranteed amount. |
UCP 600 can make sense when you want a documentary credit style draw. That usually means invoices, transport documents, and defined document examination standards. It is heavier operationally and easier to trip on discrepancies.
| Section | Sample Wording |
|---|---|
| Applicable Rules | This standby letter of credit is subject to UCP 600. |
| Availability | Available by payment at sight against presentation of the documents listed below. |
| Documents Required | (1) Signed demand for payment referencing this standby number. (2) Commercial invoice issued by the Beneficiary to the Applicant for the amount drawn, referencing [Underlying Agreement]. (3) Beneficiary certificate stating that the amount invoiced remains unpaid past its due date. |
| Presentation | Documents must be presented on or before expiry at [Place for Presentation]. |
A demand statement should be short, clear, and executable. If you require the beneficiary to “prove” default through documents that do not exist, you create a standby that looks strong but cannot be drawn.
These issues produce last-minute disputes and missed deadlines. Clean drafting reduces operational risk.
| Item | What To Confirm |
|---|---|
| Purpose | Payment support, performance support, advance payment, bid, lease, or other. The purpose drives the right document set. |
| Rule Set | Choose ISP98 for most standbys, UCP 600 for documentary-heavy draws, URDG 758 for demand guarantees and guarantee practice. |
| Draw Documents | Minimum executable set. Avoid documents controlled by the applicant. Avoid “proof” requirements that do not exist in real workflows. |
| Expiry and Presentation | Clear expiry date, clear place for presentation, clear method for presentation, and clarity on partial and multiple drawings. |
| Operational Feasibility | Can the beneficiary present exactly what is required within the deadline under realistic conditions and time zones? |
| Bank Policy | Issuing bank house wording, compliance constraints, sanctions policy, and any country or sector restrictions. |
AI can help extract clauses into a checklist and spot inconsistencies across drafts. It should not be the final reviewer. The risk is simple: a single wrong condition or a missing presentation detail can turn an instrument into a dispute. The clean approach is controlled drafting, counsel review where needed, and final alignment with the issuing bank’s house format.
If you are preparing an SBLC or demand guarantee request, share the underlying contract summary, purpose of the instrument, proposed draw documents, expiry requirements, and the issuing bank constraints. We will revert with a wording checklist, executable document set recommendations, and a structured issuance pathway through regulated counterparties.
Request A QuoteDisclaimer: This page is for general information only. It does not constitute legal, tax, regulatory, investment, or credit advice and it is not an offer or solicitation. Financely is not a bank, lender, broker-dealer, insurer, surety, or investment adviser. Any SBLC or guarantee is issued solely by regulated banks or institutions under their own approvals, policies, and documentation. All transactions are subject to due diligence, underwriting, KYC and AML review, sanctions screening, and execution of definitive agreements. Sample wording is illustrative and must be tailored and approved by the issuing bank and counsel.
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