A bank guarantee is created upon a written declaration of the issuer in a guarantee document that it shall satisfy the creditor under the guarantee document up to a certain financial amount provided the debtor fails to discharge a certain debt towards the creditor or provided other conditions set forth in the guarantee document are met. Guarantee documents must be in writing.
What are bank guarantees used for?
- Essentially, any kind of business, payment, and goods or services delivery here and abroad can be secured owing to it.
- Eliminating both the contractor’s and the customer’s risks (for instance, when a business partner does not want to refund the advance payment, fails to meet the contractual obligations or delivery deadline, withdraws from the contract, etc.).
- Allowing you to negotiate more favourable conditions of the contract, because you provide your business partner with quality security of your obligations (since the bank guarantees are security instruments of an abstract nature, the receiver of a bank guarantee has the possibility to immediately receive payment from the issuing bank provided the conditions stated in the guarantee document are met).
- Saving the costs and improving the cash-flow of your company.
Types of bank guarantees
- Bid Bond, Tender Guarantee: Covering the bidder’s commitment to adhere to the terms and conditions of its bid presented for tender.
- Performance Bond: Covering the contractor’s commitment to duly meet the terms and conditions of a business contract.
- Advance Payment Guarantee: Covering the refund of advance payment made by the customer to the contractor should the contractor fail to meet its contract-related obligations.
- Retention Money Guarantee: Providing for the refund of retention money to the customer should the contractor fail to meet the contractual obligations arising from the contract within the warranty period.
- Payment Guarantee: Providing for the fulfilment of the customer’s payment obligations arising from the business contract to the contractor.
- Other types of Guarantees: the guarantee period, the guarantee for the rent guarantee for electronic tolls, etc.