Commercial Letter of Credit

What are the Differences Between MT 700 and MT 760?

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What are the Differences Between MT 700 and MT 760?

MT700 and MT760 swift message types that banks use when issuing documentary credits and guarantees, respectively.

  • Banks use MT700 when issuing a commercial letter of credit or a standby letter of credit.
  • Banks use MT760 when issuing a demand guarantee or a standby letter of credit.

MT700 is used to indicate the terms and conditions of a commercial documentary credit or a standby letter of credit which has been originated by the Sender (issuing bank). This message is sent by the issuing bank to the advising bank.

MT760 is is sent between banks involved in the issuance of a demand guarantee or a standby letter of credit. It is used to issue a guarantee or to request the Receiver to issue a guarantee.

Comparison Between MT700 and MT760

comparison between mt700 and mt760

What are the Differences Between Standby Letters of Credit and Commercial Letters of Credit?

Ozgur Eker (CDCS) Commercial Letter of Credit, Letter of Credit Types, Standby Letter of Credit , ,
What are the Differences Between Standby Letters of Credit and Commercial Letters of Credit?

Standby letters of credit and commercial letters of credit are two main documentary credit types used in international trade transactions.

A standby letter of credit is a bank’s undertaking of fulfilling the applicant’s obligations.

In case, the applicant can’t fulfill contractual obligations against the beneficiary of the standby letter of credit, then the beneficiary can apply to the issuing bank for full compensation.

A commercial letter of credit means any arrangement, however named or described, that is irrevocable and thereby constitutes a definite undertaking of the issuing bank to honour a complying presentation.

Commercial letters of credit are mainly used as a primary payment method in export and import of the tangible goods in international trade.

Table 1: Differences Between Standby Letter of Credit and Commercial Letter of Credit

Differences between standby letter of credit and commercial letter of credit

 

Common Characteristics of Standby Letters of Credit and Commercial Letters of Credit:

Both standby and commercial letters of credit;

  • are irrevocable and conditional payment promises, which is given by a trusted financial institution mostly by a bank.
  • independent payment mechanisms, whatever contracts they may base.
  • are governed by ICC’s rules, ISP 98 and UCP 600, respectively.
  • have a documentary nature.

Types of Letters of Credit

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Types of Letters of Credit

From their origins in 18th-century traveler’s credit systems to today’s cornerstone role in international commerce, letters of credit (LCs) have transformed into all-round, secure financial instruments critical for mitigating risk in cross-border transactions.

These tools are broadly categorized into commercial letters of credit—the go-to payment method for facilitating trade deals—and standby letters of credit, which act as safety nets for contractual obligations.

Beyond these core types, specialized variations like red clause, confirmed, transferable, and back-to-back letters of credit offer tailored solutions to meet the unique demands of buyers and sellers.

In this post, we break down the different types of letters of credit and how they secure global transactions.

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