Bank guarantees

What is a Bank Guarantee?

This is a surety that is provided by a bank or a financial institution that they will pay off the debts and liabilities

incurred by an individual or a business entity in case they are unable to do so.
This enables a business to grow and expand by deferring payment of goods and services they are utilizing now to a later date. This helps a business to invest on a larger scale than would have been possible without the bank guarantee.

Types & Purposes of Bank Guarantees

    There are in general two types of Bank Guarantee:
  • Direct bank guarantee is a guarantee which is issued by the bank of the account holder directly in favour
  • of the Beneficiary.
    Indirect guarantee is a guarantee which is issued by a second bank in return for a counter-guarantee.
    A financial institution can provide many different types of bank guarantees. These include the following:
  • Performance Guarantee (or Performance Bond) – these are bonds that act as collateral for any loss suffered by the buyer in case the performance of the seller is below par.
  • Advance Payment Guarantee – this is to ensure the safety of any advance payment made by the buyers to the seller. In case the seller is unable to deliver the service or the goods, then the buyer can get his money back.
  • Payment Guarantee – this guarantee is provided to the seller, ensuring payment by a predetermined date..
  • Conditional Payment Undertaking – This is an instruction to the bank from an account holder to pay a sum of money to a creditor on completion of certain conditions. This bond is a post contract instrument that is used to pay off agents and contractor on completion of a project.
  • Ao Guarantee Securing Credit Line – This surety is given to a creditor on claims against the debtor in case a loan is not repaid as per the terms of the agreement..
  • Order and Counter Guarantee – This is a surety given by the debtor to the creditor, to protect against the failure to fulfill an obligation as contracted. In case of default, the creditor can demand the payment back.

Who are the parties to the standby letter of credit

  • Applicant
  • Counter- Guarantee bank
  • Issuing bank
  • Beneficiary

How Do Bank Guarantees Work?

The system for providing bank guarantees work like this:
  • Applicant and the creditor ascertain that there is a need for a bank guarantee
  • Applicant reaches out to a financial institution to issue a bank guarantee to the creditor.
  • The bank runs a risk assessment and asks for a security.
  • The applicant furnishes the security and the bank, or the financial institution processes the bank guarantee.
  • The bank guarantee is sent to the creditor’s bank or the creditor, or the applicant may be asked to collect it in person to give it to their creditor.

We offer under Bank Guarantee

  • Reviewing Bank Guarantee format / Text as per Uniform Rules for Demand Guarantees (URDG 758).
  • Providing Draft Bank Guarantee based on the client requirement of underlying agreement/contract
  • Removing/ incorporating necessary clauses under Bank Guarantee format/ text which is protecting in getting default of payment/ performance.
  • Preparation of any Beneficiary documents under event of demand/claims.
  • ACS handles critical step in removing unnecessary clauses in the text of the guaranteeappropriately to assist the customers in getting payment on time from the Guarantor Bank in case of default.

ACS work flow of Bank Guarantees

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