Bank Guarantee (MT- 760) is a written undertaking by the bank as a provider in favor of the beneficiary at the request of the bank’s client who has an existing contract with a particular seller/exporter to procure several commodities and has pledged to fulfill all their financial commitment to the seller/exporter in case of default.
A Bank Guarantee enables companies to make purchases that they would otherwise not be able to make, acquire goods, equipment, commodities, draw down loans, and secure contracts or leasing arrangement without tying up their working capital and thereby expand business activity.
A Bank Guarantee may be utilized to pay an agreed-upon sum to the seller when purchaser/importer acquires goods from a seller/exporter that may be experiencing difficulties in their cash flow & can’t pay the supplier/exporter. On the other hand, if the seller/exporter was unable to supply the merchandise, the BG provider bank will compensate the buyer/importer as per the agreed amount in their contract. In effect, the BG serves as a security for both the buyer/importer & supplier/exporter.
As the guarantor, the BG provider bank will be responsible to handle the debt or obligations instead of their client. The rights and obligations of both parties should be written in the contract prior to issuance of the BG.
BG usually help companies carry out their business with other parties with whom they did not get chance to deal with before. Many suppliers frequently prefer to do transactions with buyers who can provide them a BG to eliminate the financial risk of not receiving the agreed amount to be paid on time for the products supplied by the seller.
Bank Guarantee can be assigned or transferred to the 2nd beneficiary upon request of the 1st beneficiary and the transferee bank must inform the BG issuing bank (provider bank) about the transferred amount and the date of transfer.
Types of Bank Guarantees
A payment guarantee serves as a commitment of the buyer towards the supplier that the payment will be made upon shipment of agreed merchandise. This is the most common type of BG used in the global trading industry for the purpose of securing payment in case the buyer defaults on the contract.
Performance Bond Guarantee
This is a type of bank guarantee issued by the supplier in favor of their buyer. If the seller fails to perform according to the agreed contract, then the buyer is entitled to claim against the issued bank guarantee for a certain amount, which is normally around 2% to 5% of the total contract value.
Advance Payment Guarantee
Whenever a supplier has requested an advance payment; the buyer can demand a bank guarantee from their supplier to secure the advance payment in the event that the supplier fails to fulfill their obligations as set in the contract.
Bid Bond/ Tender Bond Guarantee
This Bank Guarantee normally backs an obligation of the tenderee to execute a contract if they are awarded a bid.
To obtain Bank Guarantee or Payment Guarantee from Bronze Wing Trading L.L.C. please follow the below procedure:
1. Buyer presents their trade deal requirement by submitting buy and sell agreement or proforma invoice.
2. BWT will do due diligence on the trade transaction between importer/buyer & exporter/supplier and informs the concerned party if the BG application is approved or not.
3. If approved, BWT will ask their client to submit further documents and payment being their BG charges.
4. Upon receipt of documents and BG charges, BWT will proceed right away and will establish the Bank Guarantee their bank account with European Bank via authenticated swift MT-760 to the supplier’s bank.