2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16
Currently irrevocable bank guarantee is one of the most popular types of financial services. Indeed, 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 necessary. But what is an irrevocable bank guarantee? How is it applied?
A bank guarantee is an obligation (written in writing) to pay a certain amount to the beneficiary, which is assumed by the banking institution that is the guarantor of the transaction, in case of refusal of the principal's obligations. The financial institution that issues the guarantee is not responsible for fulfilling the terms of the agreement between the parties, but, nevertheless, assumes the obligation to make all payments that are specified in the terms of the issued guarantee. This is not a form of payment and is applied only in case of non-fulfillment of obligations to the beneficiary.
Quite often inas a guarantor of the financial activities of the enterprise to fulfill its obligations is a banking institution. This form of obligation is very common between legal entities. An obligation entered into between a financial institution and a creditor to pay a debt is the provision of an irrevocable bank guarantee.
This type of transaction is formalized, an agreement is concluded between the lender and the bank, which is signed by the chief accountant of a financial institution, and also certified by a seal.
There are certain circumstances in which an irrevocable bank guarantee becomes void. These include: renunciation of their rights as a creditor, when returning a guarantee document to the bank; refusal of the creditor from the service and release of the bank from the obligations given to them; expiration of the warranty; fulfillment of these obligations by the debtor. Irrevocable bank guarantee is the actual confirmation by the financial institution of the solvency of the contractor, as well as the possibility of ensuring the implementation of the obligations specified in the contract. If the obligations to the creditor are not fulfilled, then the bank assumes them. This means that he pays certain funds to the creditor upon a demand in writing.
Irrevocable bank guarantee cannot be revoked by the guarantor organization. That is, the financial institution that ensures the execution of the terms of the transaction is obliged to fulfill its obligations. This rule is valid for the entire warranty period, whichvery important for the customer.
When an agreement is drawn up with a bank, it is necessary to clearly and correctly prescribe its irrevocableness in order to reduce the risk of various disputes arising in the interaction of the parties. The warranty period almost always extends for the duration of the contract with the financial institution.
When a bank issues a guarantee, it has the right to demand remuneration for the provision of services from the debtor, as well as compensation for losses when paying the contractor's debts. When concluding a deal 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 financing instruments that ensure the reliability of contracts, as well as trade turnover included in commercial lending.
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