A standby letter of credit has the form of a commercial documentary credit but the substance of a guarantee. It is easy to use, particularly for parties who use documentary credit as a mode of payment. The same set of international rules for documentary credits is also applicable to standbys. It is no coincidence that companies often need the two instruments, especially in connection with project-type deliveries.
The use of standbys was first started in the United States in the 1970s and the primary market is still on the American continent, although the use of standbys has clearly gained ground around the world.