/ / Why you need an irrevocable bank guarantee

Why you need an irrevocable bank guarantee

Currently, an irrevocable bank guaranteeis one of the most popular types of financial services. After all, at the conclusion of each transaction there is a risk of refusal of any party from its obligations, and these refusals can lead to significant monetary losses. To protect yourself from possible risks - this service is needed. But what is an irrevocable bank guarantee? How is it applied?

A bank guarantee is a liability(executed in writing) on ​​the payment to the beneficiary of a certain amount that the banking institution that is the guarantor of the transaction assumes in the event of the refusal of the principal's obligations. A financial institution that issues a guarantee is not liable for meeting the terms of the contract between the parties, but nevertheless takes upon itself the responsibility to make all payments that are prescribed under the terms of the issued guarantee. This is not a form of settlement and is only applied if the obligations to the beneficiary are not fulfilled.

irrevocable bank guarantee

Quite often, as a guarantor of financialthe activity of the enterprise in the performance of its obligations is a banking institution. This form of obligation is very common between legal entities. The obligation entered into between a financial institution and a creditor for payment of a debt is the provision of an irrevocable bank guarantee.

what is an irrevocable bank guarantee
This type of transaction is formalized, a contract is signed between the creditor and the bank, which is signed by the chief accountant of the financial institution, and is also certified with a seal.

There are certain circumstances in whichirrevocable bank guarantee becomes invalid. These include: the waiver of their creditor rights, upon the return of a guarantee document to the bank; the refusal of the creditor from the service and the release of the bank from its obligations; the completion of the guarantee; fulfillment of these obligations by the debtor.

Irrevocable bank guarantee is an actualconfirmation by the financial institution of the solvency of the executor, as well as the possibility of ensuring the implementation of the obligations specified in the contract. If the obligations to the creditor are not met, then the bank takes them over. This means that he pays a certain amount of money to the creditor against the demand in writing.

Irrevocable bank guarantee can not bewithdrawn organization-guarantor. That is, the financial institution that ensures the fulfillment of the terms of the transaction is obliged to fulfill its obligations. This rule is valid for the entire warranty period, which is very important for the customer.

irrevocable bank guarantee
When an agreement with the bank is drawn up,clearly and competently prescribe its irrevocability, in order to reduce the risk of occurrence of various disputable situations in the interaction of the parties. The warranty period is almost always extended to the entire duration of the contract with the financial institution.

When a bank issues a guarantee, it has the rightdemand compensation for the provision of services from the debtor, as well as compensation for losses when paying debts of the contractor. When concluding a transaction for this type of guarantee, it is necessary to take into account even the smallest nuances.

Today, bank guarantees are one of the most common instruments of financing, ensuring the reliability of contracts, as well as the turnover that is part of the scope of commercial lending.