Standby Letter of Credit to Secure Payment Clause
(General Contract)


This clause is an example of a standard payment provision for inclusion in a general contract for the sale of goods or services that requires a buyer to secure its payment obligations to seller using a standby letter of credit. This clause includes practical guidance, drafting notes, and alternate and optional clauses. A standby letter of credit provides a secondary source of payment to the seller under a contract for the sale of goods or services. The bank that issues the standby letter of credit is only obligated to make payment if the seller, as beneficiary, makes a draw request under the letter of credit due to a default by the buyer on its payment obligations under the contract. By using the letter of credit, the seller relies on the creditworthiness of the issuing bank for a secondary source of payment, rather than relying solely on the buyer which may be located in a foreign country or unfamiliar to the seller. The specific required letter of credit terms should be tailored to ...