Bank Guarantee Sabina Chauhan

Bank Guarantee A Bank Guarantee is an irrevocable undertaking issued by the guarantor (bank), upon instructions or request of the principal (applicant or importer) to pay the beneficiary (exporter) any sum that may be demanded by that beneficiary up to a maximum amount determined in the guarantee in case of default of the applicant. In this agreement, the bank acts as a surety of payment, so banks get commitment fees for this service.

Features Bank Guarantees are in written form. Issued specifically for a purpose of facilitating trade. They are irrevocable. Minimizes risk in commercial contract. The bank will hold adequate assets of the account holder as security for the Bank Guarantee. Bank Guarantees cannot be transferred to third parties unknown to the banks. They cannot be bought or sold. They are issued for a specific time period. Upon Expiry, Bank Guarantees are terminated, they are not traded.

Bank Guarantee vs LC In L/C payment is made on the behalf of customer after receiving goods where as in bank guarantee payment is made only in case of default of buyer. In L/C payment is made only when the condition specified is fulfilled. But in guarantee payment is made on the non-fulfillment of obligation by the customer.