A bank guarantee is the most common way of managing different types of risks in business activities. Bank guarantee decrease the risks arising from contract and avoid risks related to prepayments. A bank guarantee, guarantees a sum of money to a recipient. The sum is only paid if the opposing party doesn’t fulfill the predetermined obligations under the contract. This can be used to effectively escape a buyer or seller from loss or damage.
A bank guarantee might be used when a buyer obtains goods from a seller then runs into available cash resource difficulties and cannot pay the seller. The Bank Guarantee would pay an agreed amount to the seller. In the same way, if the supplier was unable to provide the goods or services, the bank would then pay the agreed sum to purchaser. Essentially, the bank guarantee acts as a safety measure for the opposing party in the business deal.
The types of guarantee based on the specific obligations guaranteed-
• Payment Guarantee:- Payment guarantee ensures a guarantee to the recipients of products and services in case the person who ordered the guarantee fails to do it by the agreed time.
• Prepayment Guarantee: – Payment guarantee ensures a compensation of prepayment to the recipient of the guarantee in case the person who ordered the guarantee fails to perform the prescribed obligations.
• Performance Guarantee: – Performance guarantee ensures reimbursement to its recipient if the person who ordered the guarantee fails to perform the contract.
• Warranty Guarantee: – Warranty guarantee ensures reimbursement to the recipient of the guarantee in case the person who ordered the guarantee will not eliminate deficiencies in the supplied goods or performed works.
Metro Financial Holdings provide Bank Guarantee and Letter of Credit Services for Small Business Finance. Contact us on+1 580-355-5800 to Get Bank Guarantee with Letters of Credit Services.
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