Bank Guarantees
Bank guarantee(BG) is a guarantee issued by a bank in a stamp paper guaranteeing to Another bank or firm or individual that the bank will pay the amount mentioned In the guarantee deed to the bank/firm/individual in case banks customer named In the guarantee deed will not pay the amount to them or perform the task within The period mentioned in the guarantee deed.
When a customer places purchase order for material or services, the seller before ensuring supply or providing service asks for advance. The customer asks some guarantee before giving the advance so that in case the seller will not supply or perform the service. Customer can enforce this guarantee and recover his amount. This necessitates issue of guarantee by bank of customer.
Bank guarantees are issued by the bank against collateral or fixed deposits by the customer Some foreign banks, financial institutions issue bg without collateral at their discretion after visualizing the financials and track record of customer(as on 12th July 2021). bgs are issued after checking financials of the customer and the firm/individual to whom it is issued. Bank guarantee may be issued for procuring advance, or ensuring supply of material or service. Bgs may also be issued for ensuring quality and quantity of supply ie performance guarantee.
In case customer fails to supply or perform the task within the time stipulated in the bg, the firm/individual to whom it is issued has to send a written communication to the bank that its customer has not performed the task/supply and request the bank to refund his amount. This has to be issued before the claim date mentioned in the bg. Otherwise he will lose his right to get refund. Once the letter is received by the bank it will check with its customer and in case supply not made /task not performed it will release the fund to the firm/individual to whom it is issued.
After refunding the money to the firm/individual the bank has a right to recover that amount from its customer with interest.
Bank charges 1% or 2% or ½% from its customer for issue of bg depending on bank and the credentials of customer and amount of bg. some foreign banks/FIs charge about 7% as charges for issue of bg.
We try to arrange bgs from banks on your request subject to your eligibility. You may contact us in case you need bg.
Letter of Credit
In a commercial deal when buyer issues purchase order to seller the seller before supply wants to ensure payment for the supply. The buyer usually prefers only to pay after supply is provided but seller wants to ensure, before supply, that payment will be made immediately after delivery of the material or service. This is done through a document named letter of credit. (lc).
In letter of credit, the buyer bank issues a letter to seller bank stating the buyer bank will release the funds to seller bank after material is supplied and purchase order conditions are complied with and conditions enumerated in lc are complied with by buyer. The buyer bank may ask for collateral from customer before issue of lc. Some times some banks may issue lc without collateral after visualizing the financial and track record of customer.
Once the material is supplied the seller will submit proof of dispatch to his banker and his banker will ask buyer bank to send the proceeds and buyer bank after checking with customer will remit the funds to seller bank. Before that customer has to keep funds with the bank.
LCs may be domestic ie buyer and seller both in india. Or may be foreign ie either buyer or seller or both of them may be in abroad.
We can arrange lc’s from Indian banks with collateral and in selected cases we may try with foreign bank without collateral through their offices/representatives in india. (as on 14th July 2021).
You may contact us for your requirements of LCs/BGs.
