You will find banks lengthening guarantee, but not warranty. A warranty, being a strict legal contract, is much riskier for the bench to extend. Bank guarantees are however common legal financial instruments for securely carrying on overseas transactions. A bank guarantee is issued by the bank only when the bank is sure concerning the financial spry of the company while is evident from its account at the bank. There is a delimit to the amount that the bank arbitrary guarantee and there is also a limit on the number of times a bank bequeath bestow guaranteed financial services on behalf of the company. However, despite these limitations, a bank guarantee is a highly effective trade business option for especially carrying on overseas transaction. The buyer usually demands the guarantee and the seller acquires it, on demand, from the bank. The two parties involved in transaction may also require other financial instruments. The letter of merit is one such instrument.
Financial services of the bank
Every business contract requires the intervention about the bank, directly or indirectly. The responsibility of the bank is to visualize that the guarantee is extended according to the financial salutary of the seller. The bank checks the financial health according to different parameters to indiging warm about the reasons to extend its guarantee on behalf of the seller. Bank guarantee and letter of credit are two financial instruments that are frequently used by the bank instead of other riskier practices like unconcealed account else escalate payment.
Types of bank guarantees
Various types of bank guarantees exist. There is a type called bid bond guarantee, which is asked by the oniomaniac while multiple corporations have applied for the tender and are in the fray for winning the project. The bid bond guarantee ensures that only serious bidders are applying for the tender. Then there are event guarantees and advance levy guarantees both required at different stages of a business transaction. In the guarantee system, the company has to prove its credit worthiness to a reputable bank, which will act as a guarantor on its behalf.
Types of letter of credit
There are four main types of letter of credit. The commonest type is about running the inveterate letter of credit. Other variants of the LC are revocable letter from credit, irrevocable letter of credit, Sight letter of credit, and to be letter of credit. About revocable and irrevocable letter of credit, it must be mentioned in the letter whether the it can be revoked or not by the seller. However, for best reasons, buyers are always recommended to stress on irrevocable epistolography of credit, as those are much less risky. The future LC is plus known as credit LC.