Overview
A bank guarantee is a financial instrument issued by a bank on behalf of a customer, guaranteeing payment to a third party under specified conditions. It acts as a safety net for the beneficiary, ensuring they receive payment even if the customer defaults on their obligations.
Parties involved:
- Applicant: The customer requesting the bank guarantee.
- Beneficiary: The third party receiving the guarantee.
- Issuing bank: The bank issuing the guarantee on the applicant's behalf.
Process:
- Application: The applicant approaches their bank and requests a bank guarantee for a specific amount.
- Issuance: The issuing bank verifies the applicant's creditworthiness and issues the bank guarantee, outlining the terms of payment.
- Delivery: The issuing bank delivers the bank guarantee to the beneficiary.
- Non-performance: If the applicant fails to fulfil their obligations, the beneficiary presents the bank guarantee to the issuing bank.
- Payment: Upon verification of the claim, the issuing bank releases payment to the beneficiary up to the guaranteed amount.
