Bank guarantees: registration and price details

 

Bank guarantees of the agreement performance

Bank guarantee is a financial instrument which is issued by banks and other financial institutions at the request of the borrower. This instrument aims to transfer funds to the creditor if all the respective documents are provided by the creditor.

The guarantor bank receives monetary compensation from the borrower for provision of such service. If this is not mentioned in the conditions of the guarantee issue, it can not be revoked by the guarantor bank or transferred to a third party.

As well as the letter of credit, the bank guarantee is an independent obligation of the bank in respect of the beneficiary on payment a particular sum to him. The evidence of this is the respective documents, but only in case of failure to perform the contractual obligations by the borrower.

Therefore, issuance of the bank guarantee is an instrument which does not depend on the agreement between the principal and the beneficiary. The guarantor bank that issued it, is obliged to make a payment not considering the current business between the two parties. It also helps to create more favorable conditions for the supply of goods.

With the support of the bank in the form of guarantees, the supplier can offer its customers new conditions of supply. Examples of such conditions may delay of payments, various discounts, etc. Any risks connected with failure of the recipient to fulfill the supply conditions shall be borne by the bank.

The provided bank guarantee is beneficial for the principals in terms of low-cost and empowering trade interaction with the supplier. The buyer can also, if agreed with the supplier, make their own procurement and calculation plans, only regulating the total debt for the supplier. The debt shall be covered by the value of the issued guarantee.

The basis for the payment under the bank guarantee is a written statement of the beneficiary on the principal's failure to fulfill his contractual obligations. In some cases, the statement is complemented by copies of unpaid bills, as well as documents of title, which evidence the dispatch of goods to the recipient.

Peculiarities

- The statement goes under authenticity check in the bank; and the guarantee is issued in accordance with the laws of the guarantor bank state.

- Based on this condition, foreign beneficiaries prefer to work with banks, which are subject to the laws of their country.

- This situation may cause additional difficulties to the principal. This is due to the fact that the provision of guarantees includes several banking institutions now.

- One of the alternative solutions is the usage of another financial instrument - Stand-by Letter of Credit. Stand-by letter of credit is irrevocable and complies with the uniform international rules of letters of credit issuance.

Types of guarantees

1. Payment obligation: provision of obligations of the importer to the exporter on payment of a certain sum established by the contract.

2. Implementation of the agreement: provision of proper performance of the contractual obligations by both parties.

3. The return of the advance payment: provision of the exporter's obligation to return the advance payment from the buyer, that was sent to him under the contract.

4. Guarantee of the tender: provision of the tender's obligations performance. Such guarantees are usually a part of the tender contract.

5. Reverse import guarantee: provides obligation of the contracting party on the duty-free import and export of materials / equipment to a certain state in the defined terms.

6. Credit reimbursement: provision of the borrower's obligations to pay a certain amount to the vendor.

7. Investment guarantee: provides the investor's obligations under existing investment contract / plan. Guarantees in Russia shall be tailored for those wishing to participate in the competitive auction.

Usually, any bank guarantees are provided for 12 months, and their confirmation is done only by SWIFT.

The reasons to choose this financial instrument

1. Issuance of the bank guarantee protects the interests of business partners in completely different business areas and professional activities.

2. This financial instrument allows not to extract money from the turnover of companies / partners.

3. The usage between the partners of the trade credit, secured by the support of the guarantor bank, becomes possible.

4. If compared with credits and factoring, the bank guarantee is a low-cost financing instrument.

Why to choose our company as the financial partner

1. We provide our clients with a wide range of foreign banks and non-banking financial institutions cooperation with which is carried out without intermediaries.

2. Banks do not issue letters of credit without covering the letter of credit on the customer\'s account and satisfactory credit history. Presence of a bank deposit or the absolute transparency of business is also required. We guarantee obtaining the financial instruments without mortgages and deposits on beneficial terms.

3. Issuing a particular financial instrument, we do not require their full coverage at the expenses of the client: he pays only a fee for opening.

4. The commission for the bank guarantee opening is different for each individual case and depends on the nominal value of a financial instrument, as well as on the level of the banking institution in which it will be opened.

5. We offer the opening financial instruments in nominal value of 50 thousand US dollars or euros.

6. Terms of issuing the financial instruments - from two to five working days after fee payment.

7. The amount of commission for opening of the financial instrument shall be paid to the account of our company. In pre-defined cases payment may be done partly, but after issuing the instrument the entire amount shall be paid.

8. Application for the instrument issuing is considered from two working days, but only if all necessary documents are available.

9. Our company is obliged to protect the confidentiality and integrity of business information of our customers.

10. We use the international banking system SWIFT for sending notification and confirmation messages.