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7 What are advantages and disadvantages of a bank guarantee?

Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 rohith asked about 3 years ago

7 What are advantages and disadvantages of a bank guarantee?

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Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 Chirag answered over 2 years ago

**Bank Guarantees** There are risks of failure or refusal of one of the parties to fulfill its obligations to other party during the partnership at local and international level. The bank guarantee is widely used all over the world as a reliable protection of other party from financial losses. PASHA Bank offers bank guarantee services for both domestic and international transactions. The Banks issues various bank guarantees both within its own capabilities and within the cooperation of the worldwide known 1st class banks. The Bank’s professionals provide complete consulting support in information about bank guarantees and selection of bank guarantee type depending on the customer needs. **Description of bank guarantee** A bank guarantee is a written instrument guaranteeing by bank to a party (seller / creditor / beneficiary) on behalf of his customer (buyer / debtor / principal), to effect payment on default of obligation against submittal of written demand or other documents specified in the guarantee. Thus, if the customer defaults on the payment to other party or refuses to pay, the Bank will cover the loss at its own account. The International bank guarantee is a written instrument guaranteeing payment to a party abroad against the submittal of its written demand or other documents indicated in letter of guarantee. **Advantages of bank guarantee** - Customer (Buyer) is not required to make the advance payment in case of bank guarantee, thus the funds are used more effectively; - Buyer gains reliable partner status at local and international markets, benefits from various partnership opportunities and is able to demand more relevant conditions from partners; - Seller is protected from default of Buyer on payment and is able to perform prompt sales without asking advance payment; - Bank guarantee requires less number of documents, no necessity for collateral and, as a result, the customer receives the letter of guarantee within shorter period of time and commission fee for services is also very low. **Main types of bank guarantees** 1. Guarantee of payment. This type of guarantee is a security of payment obligations of Buyer to Seller. 2. Guarantees of advance payment return. This guarantee represents an obligation of the bank to return advance payment in the event that, after receiving an advance, the Seller does not perform its contractual obligations. 3. Contract execution guarantee. This guarantee is a security of timely delivery of goods or performance of services according to a contract. 4. Tender guarantees. This guarantee plays a role of security in those cases when the Company fails to perform its obligations to tender organization or other party that is stipulated in the order received by winning the tender. 5. Guarantee in favor of the customs authorities. This guarantee is a security of obligation of the company performing import and export operations to the Customs authorities for payment of customs taxes and duties. 6. Guarantees of warranty execution. This guarantee plays a role of security of quality for delivery to the contract terms. 7. Guarantee of credit return. This guarantee is a security for repayment of credit. For additional information please contact PASHA Bank Business Centers, Contact Center at (994 12) 496 50 00 or Customer.Care@pashabank.az email address.

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