A guarantee is a security instrument under which the issuing bank undertakes, at the customer's request, an irrevocable liability to pay on demand the agreed amount to the guarantee beneficiary as reimbursement for any default or non-performance by its customer whose liabilities the Bank will settle.
There are various types of guarantees, such as:
- Customs guarantee
- Advance payment guarantee
- Tender Guarantee
- Performance Guarantee
- Payment Guarantee
- Loan repayment Guarantee, etc.
Benefits for the beneficiary
All guarantees ensure the beneficiary that he/she shall be compensated by the Bank for any non-performance or default by a negligent contractual partner.
Benefits for the ordering party
Using the name of his Bank, the ordering party is ensured a better position and better negotiating conditions and is protected against negligent beneficiary.