Important Information About Bank Guarantees
Bank guarantees are credit commitments made with customers in order to make international exchanges easier and successful for both importers and exporters.
We could define bank guarantees as the commitment given by the financial institution (guarantor) to pay a certain amount to the beneficiary (usually the exporter) if it presents documents previously agreed upon and which confirm that the other party has not complied with its obligations (the payment of the importer normally). Through a bank guarantee, the exporter is assured of recovering the goods delivered even if the buyer does not pay.
The bank guarantee establishes the amount and date that the seller is to receive payment if the importer does not fulfill its obligations.
In order for bank guarantees to be valid, they need to specify the period for which the bank can pay for the merchandise. Bank guarantees do not have indefinite duration. If the guarantee is not used, it means that the transaction was satisfactory for the importer and exporter and the bank does not need to mediate.
Depending of their purpose and their uses bank guarantees are categorized differently.
There is a period before the bank guarantees comes to being. Banks can decide to grant the credit and reserves the funds and in the meantime, it assesses the proposal.
Technical bank guarantees are usually give to non for profit organizations, or socially oriented businesses or institutions.
Bank guarantees are most commonly given for economic and financial purposes. Banks commit to fulfill the obligations of the buyer in the case the latter fails to do so. Bank guarantees are useful for commercial and financial transactions.
In the event that the guarantee is made to the importer, it means that the importer has claimed payment for the production or processing of goods to be supplied. That is why the buyer wants to ensure the recovery of the sum advanced for any breach of contract by the other party.
In the event that the guarantee is made to the exporter, it means that the importer has bought merchandise for which it has to pay after reception of the bill. This gives security to the exporter that he or she will receive the payment for the agreed amount even if the importer does not do it.
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Tags: Financial Institution, Bank Guarantees, Proposal, International Exchanges