Letters of Guarantee
A guarantee is a written undertaking by the financial institution that in the event the customer does not meet a certain obligation the financial institution will pay the amount of money to the party in question in the name of the customer.
Guarantees can be conditional or unconditional. If the guarantee is conditional this means that the party who wants to claim a guarantee must fulfil a few conditions before the guarantor is prepared to pay the corresponding sum to the party entitled to the claim. If the guarantee is a simple receivables guarantee this means that the party entitled to the claim in the document can demand the claim listed in the guarantee by means of a simple request.
Benefits of using a Letter of Guarantee
- A letter of guarantee is a reliable security instrument in both international and domestic trade
- Cost savings
- Positive impact on your company’s cash flow
- It provides security for various types of risk: limitation of risk related to your business partner’s potential insolvency or unwillingness to pay; limitation of risk related to breach of contractual obligations