Letters of Guarantee

Letters of guarantee come in several different forms.  All in all their main purpose is to ensure that the buyer and seller’s best interests and assets will be protected.  They also serve as a safeguard to ensure that both parties will meet their obligations.  A letter of credit usually grants security to the buyer or exporter and is issued by the bank.  With letters of guarantee, the letter is issued to either the seller or the buyer, depending on the situation.  In the case of a supplier, if they fail to meet their obligations, the bank then bears the weight of that responsibility so that the buyer is protected.  The bank then passes those penalties and responsibilities onto the supplier without the buyer losing anything.  Tender guarantees, performance guarantees, and advance payment guarantees are the main forms of letters of guarantee, and each has its own terms and meaning.

Aside from a promise on goods and services, letters of guarantee can apply to other aspects of business as well.  Some examples of this include obligations in regards to tax or customs costs, damages to goods, or theft.  All of these are created to protect both buyer and seller and ensure a smooth transaction without loss on either side.  It is important for both the buyer and the seller to participate in obtaining letters of guarantee from their respective banks to avoid any conflict that may arise potentially.  The bank can customize the letter to fit the specific needs of just about any situation, as long as the guidelines fall within the limits of the customer’s bank laws and state, local, and federal laws.  Be sure to have all letters of guarantee signed, dated, and notarized if possible to ensure that a proper record is kept and that all parties are aware of the terms laid forth.