Letter of good standing is a document issued by the bank upon customer’s request, used to express the bank’s intent/availability to support and develop the customer’s internal and international business relationships, under certain conditions.
Just like people, businesses and financial institutions prefer developing relationships with individuals or organizations they trust. Therefore, when determining whom to trust, these institutions prefer to put their faith in the recommendations of other, similar businesses or institutions.
A letter of good standing is one way of obtaining such a recommendation. Banks and other financial institutions throughout the world provide these letters to clients upon request. This letter works much like a standard personal reference letter but speaks to your financial reputation and history.
Also referred to as a bank reference letter, these documents contain information about your history and relationship with your bank. These letters speak of your financial responsibility and stability and demonstrate your ability to maintain a healthy, working relationship with a financial institution.
A letter of good standing typically serves as a type of formal introduction and a vouch or your financial situation. Note that some bond companies would need an account satisfactory letter from a bank before agreeing to do business with prospective clients, as do financial institutions in other countries.
These letters also validate your identity, testifying that you come to an institution with legitimate business. A Swiss bank, for example, may ask for a letter of good standing, as may companies dealing in offshore accounts or business. These letters apply to companies as well as individuals.
Note that the process of obtaining a letter of good standing from a bank depends upon the institution providing the letter. Some institutions would want to maintain an official process or a form you must file, while others require you only to contact the institution and request such a form. However, banks only provide these letters only if you are a client in good standing – if a bank maintains a contentious or unprofitable relationship with you, no incentive for providing such a letter exists.
What are the Components of a Letter of Good Standing?
Have it in mind that the recipient of the Letter of Good Standing will most likely specify what to include in a letter. Unless the recipient provides a form, the letter should be printed on the letter writer’s letterhead. The important components to include are:
- Length of relationship: How long have you been a customer?
- Payment history: Do you usually pay on time, and are you currently behind on payments? Have there been any late payments during the past 12 months?
- Type of service: What products and services do you buy from the reference provider (whether it is a line of credit, residential electricity, or inventory)?
- Terms of credit: Does your agreement require that you pay within 30 days, for example?
- Address of service: Especially for utilities, the address and type of service are relevant. Multiple addresses are not necessarily a problem (if you moved several times while using the same provider).
- Account numbers: Account numbers make it easier to track and verify details.
- Typical payment amounts: New service providers might want to know if you’re accustomed to making large payments. If so, that signals that cash flow is not a problem.
- Total payment amount: How much have you paid over the life of your relationship? This helps requesters gauge the size of your relationship.
- Late payments: Have you made late payments in the past (typically only delays of more than 30 days matter)? If so, how many times?
How to Get a Letter of Good Standing from the Bank
A letter of good standing from a bank is expected to be written on the letterhead of the institution providing the letter. This letter of good standing provided to you by your bank contains your name and the name of any business aegis under which you operate.
A bank official signs the document and provides an official seal. All other information, such as the nature of your relationship with the bank and any specific information about your account balances can vary – different banks follow different formats when creating these letters. Nonetheless, here is how to get a letter of good standing from your bank in the United States.
Note that to use a Letter of Good standing, you will have to ask the recipient what they need to see in a letter. A letter that doesn’t meet those requirements won’t do you any good. Note that in some cases, lenders and service providers will offer a template that your previous service providers simply fill in. Those forms are ideal for ensuring that you meet all requirements.
Request The Letter
Then contact your existing service provider and ask for a letter of good standing. Provide any templates or instructions you receive from the letter requester, and ask how long to wait for the completed letter. Providing a sample (or fillable template) makes the job easy for the letter writer and may speed up the process.
Note that to release details about your account, the letter writer will need your permission. In most cases, you can provide that authorization online or by fax. Check with the letter provider, as they may require that you use their forms for the request.
“No” is a Possibility
Lenders, service providers, and suppliers are not expected to provide a Letter of Good Standing on your behalf. Howbeit, it is very advisable to ask nicely and make their job easy — they are doing you a favour. If a service provider does not accommodate your request, there may be other ways to document your payment history.
A letter of good standing typically sticks to the requested information without additional commentary. Don’t expect a letter writer to say you are a great person or you have been a valuable partner (although that could happen).
A letter of good standing can help you get approved for services based on your dealings with suppliers you have previously used. The letter provider vouches for you, making the letter recipient more comfortable with extending credit.