Payment Bank Guarantee
A bank guarantee is an assurance that a bank provides to a contract between two external parties, a buyer and a seller. The bank undertakes an irrevocable payment obligation in relation to the beneficiary of the guarantee and assumes liability for completion of the contract should the buyer default on their debt or obligation. Bank guarantees are generally used as collateral in the case of credit transactions. These include deferred payment transactions frequently applied in international trade when the buyer pays for the goods neither in advance, nor immediately but afterwards, thereby creating a business situation when the seller “quasi” grants credit because the buyer postpones the payment for the goods to a later date. In the field of international trade, acceptance of promise to pay secured by bank guarantees, is regarded the second most secure payment method after letters of credit/ documentary credits from the point of view of the seller. Naturally, a bank guarantee also has an expiry date that can be a few months but also several years in certain cases when required by the the maturity date of the credit secured by the guarantee.