Letter of Guarantee (L/G ) L/C offers a safe way for the settlement of payment in international trade. But on some occasions L/C can not be used as when the deal covers a long period of time or when the business is done in some other area rather than trade. Under such cases, Letter of Guarantee and standby L/C can be used.

A letter of guarantee is a subordinate document issued by a bank by which the issuing bank promises to the beneficiary that it will hold itself responsible for the debt, losses caused by the fault or infringement of contract of a third person. Three parties are involved in a L/G: Principal （委托人）, Beneficiary （受益人）, Guarantor （保证人）. It can be used on various occasions.

Differences between L/C and L/G A L/G is different from a L/C. (1)Under a L/C, the opening bank holds itself responsible for the payment of the goods, while under a L/G, the issuing bank holds itself responsible only after the principal has not fulfilled its obligations. (2)Under a L/C, the beneficiary can get the payment through negotiation but he cannot do so under a L/G.

(3) Besides, under a L/C the issuing bank handles only the relevant documents, it has nothing to do with the sales contract, but under a L/G, when the beneficiary has presented a written document declaring that the principal has not fulfilled his obligations and asks the issuing bank for recompense, the bank will have to make clear how and why his principal has not fulfilled his obligations. In this way, he may get involved into the disputes. As some countries like USA and Japan do not allow their banks to get involved in commercial disputes, so the banks of these countries do not issue the L/G. Instead they use standby L/C.

Payment by Installments With a L/G or a standby L/C, payment by installments or deferred payment may be used. Under payment by installments, the buyer will first pay a certain amount of down payment and the balance of the payment will be made by installments along with the installment deliveries of the goods.

Deferred Payment Under deferred payment, the buyer first pays a certain amount of down payment and the balance of the payment will be made by installments during a long period of time after the seller has delivered the goods. This is in fact a credit sale, by which the buyer can make the purchase by using foreign funds. Deferred payment involves interest, and an interest clause should be given in the contract.

Combined Use of Different Methods of Payment Various methods of payment can be combined together for the settlement of payment for various reasons and on various occasions. Among them are the combination of L/C with collection, combination of L/C with remittance, the combination of documentary collection with down payment, and the combination of documentary collection with standby L/C.

Combination of L/C and Remittance Payment effected in this way will partly made by L/C and partly by remittance. If the remittance is made before the shipment of the goods, the money is taken as advanced payment. If it is done after the shipment of the goods, it is often used for the balance of the payment for the consignment which can be varied/changed in amount.

Combination of L/C and Collection Payment effected in this way will partly be made by L/C and partly by collection. This will require the buyer to open a L/C for a certain percentage of the whole payment of the goods. The balance is to be collected. Also in the sales contract, it should be declared clearly that the amount of payment under the L/C will be available against a clean draft, while the balance of the payment will be available against documentary draft on collection basis. The shipping documents will not be released to the buyer unless he has effected all the payment.

Combination of Documentary Collection and Standby L/C To avoid risks in documentary collection, the exporter can ask the importer to open a standby L/C. Thus when the draft under collection has been dishonored by the importer, the seller can ask the opening bank of the standby L/C for payment. To use this method, the time of validity of the standby L/C must be sufficiently long, so that after the payment has been dishonored, the exporter has enough time to ask for the issuing bank for the payment..

Differences between Payment by Installments and Deferred Payment 采用延期付款时，其作法虽与分期付款类似，但二者 有所不同，主要区别是： 1. 货款清偿程度不同。采用分期付款，其货款是在交货 时付清或基本付清；而采用延期付款时，大部分货款 是在交货后一个相当长的时间内分期摊付。 2. 所有权转移时间不同。采用分期付款时，只要付清最 后一笔货款，货物所有权即行转移；而采用延期付款 时，货物所有权一般在交货时转移。 3. 支付利息费用不同。采用分期付款，买方没有利用 卖方的资金，因而不存在利息问题；而采用延期付款 时，由于买方利用卖方的资金，所以买方需向卖方支 付利息。