Credit Glorious: Bank Guarantees Guide

Bank Guarantees Guide

Bank guarantees are financial instruments used in commercial transactions to ensure the payment of obligations or commitments made by one of the involved parties. These guarantees provide security and trust to the parties involved in the transaction.

In this article we will take a further insight into these tools and their advantages.

What is a bank guarantee?

A bank guarantee is a formal commitment undertaken by a financial institution on behalf of a client (sender) in favor of another party (beneficiary) to guarantee the payment of a specified amount or the fulfillment of an obligation, in case the client fails to comply with the contractual terms or established conditions. The bank guarantee acts as a type of financial insurance policy, providing protection to the parties involved in the transaction.

How bank guarantees work?

Bank guarantees are governed by international rules, such as the rules of the International Chamber of Commerce (ICC), particularly the Uniform Rules for Demand Guarantees (URDG 758). These rules establish the standards and procedures for the issuance, presentation of payment claims, and resolution of disputes related to bank guarantees.

Practical example of a bank guarantee in the transport of goods

Imagine a situation where a company A, the sender, wants to send a shipment of goods to company B, the beneficiary. Company B requests a bank guarantee to ensure that company A fulfills the terms and conditions of the commercial agreement.

1. Company A turns to Credit Glorious, a specialized financial institution in issuing bank guarantees, to request the issuance of a bank guarantee related to the shipment of goods. The amount of the bank guarantee will be determined based on the value of the transported goods and the terms of the agreement.
2. Credit Glorious reviews company A's request, evaluates its creditworthiness, and verifies the validity of the request. Subsequently, the financial institution issues a bank guarantee in favor of company B.
3. During the shipment, if there are damages to the goods or delays in delivery, company B can submit a payment claim to Credit Glorious, providing the documentation and evidence necessary to demonstrate the incurred damage.
4. Credit Glorious reviews the request submitted by company B and verifies its compliance with the terms of the bank guarantee. If the request is valid, Credit Glorious makes the payment to company B for the specified amount in the guarantee.
5. Subsequently, Credit Glorious recovers the amount paid to company B from company A, based on the provisions of the underlying agreement and the issued bank guarantee.

Benefits of bank guarantees

• Trust and security: They provide security to the parties involved, ensuring the fulfillment of contractual obligations.
• Ease of negotiation: They facilitate contract negotiations by providing an acceptable form of security for both parties.
• Access to new business opportunities: They allow companies to participate in international transactions and access new markets.
• Credit risk mitigation: They reduce the risk of insolvency or contractual default by providing financial coverage in case of non-compliance by the client.

Credit Glorious and bank guarantees:

• ICC Compliance: Credit Glorious adheres to ICC rules, ensuring standardized and internationally recognized procedures for bank guarantees.
• Experience and expertise: Credit Glorious boasts extensive experience in providing bank guarantees and financial solutions to companies. Their team of experts offers personalized and professional advice to meet the specific needs of clients.
• Flexibility and customization: They offer a range of customizable bank guarantees to adapt to the diverse needs of businesses.
• Efficiency and customer service: They are committed to providing high-quality customer service, offering prompt and efficient assistance for all customer needs related to bank guarantees.