Letter Of Bank Guarantee: Fill & Download for Free

Both of these are contingent liabilities. That means a non fund based advance which can be changed to fund based respect to certain conditions mentioned therein.A bank guarantee is a promise for non-performance. In bank guarantee, a bank guarantees any work that has to be performed failing which the bank promises to pay the dues.A letter of credit on the other hand is a promise for performance. It promises the beneficiary that the payment will be made in time and in full, subject to conditions mentioned in the lc.An example can be a tender for construction of bridge. A bank can give a bank guarantee at the time of bidding in the tender, that the applicant will construct the bridge after tender is rewarded. On the other hand letter of credit can be issued by the bank if the same person wants to procure raw materials on credit, promising the creditors that the payment will be made by the person, if not, the bank will pay.

A “Letter of Credit” is an obligation taken by the issuing bank to make a payment once certain criteria are met. Once these terms are completed and confirmed, the bank will transfer the funds.Whereas in a “Bank Guarantee”, the bank guarantees a sum of money to be received by a beneficiary.For Example: Let “A” be a buyer of goods/services from a seller “B”. The seller “B” may request the buyer “A” to obtain a letter of credit before the transaction occurs. The buyer would purchase this letter of credit from a bank and forward it to the seller's bank. This letter would substitute the bank's credit for that of its client, ensuring correct and timely payment.A “Bank Guarantee” guarantees a sum of money to a beneficiary. Unlike a line of credit, the sum is only paid if the opposing party does not fulfill the stipulated obligations under the contract or the performance criteria is not met. This can be used to essentially insure a buyer or seller from loss or damage due to nonperformance by the other party in a contract.Suppose a buyer obtains goods from a seller and then runs into cash flowdifficulties and can't pay the seller. The seller here would buy a guarantee from the bank to avoid the risk of non-payment of the agreed-upon amount by the buyer. Similarly, if the supplier was unable to provide the goods, the bank would then pay the purchaser the agreed-upon sum. Essentially, the bank guarantee acts as a safety measure for the opposing party in the transaction.In Summary,Letter of Credit is a 'payment against performance'Performance Bank Guarantee is a 'payment against non-performance'

In import export business letter of credit (LC) is secure way to make payments for the products or goods. A letter of credit is a document in which a bank guaranteeing that the seller will receive payments for his goods, It is safe way of payments in this bank (buyer) guaranteed to pay the cost of product to the bank (seller).In this transaction of payments both buyer and supplier agree on the condition of letter of credit, after agreement the buyer request his bank to issue the letter of credit to bank (seller). Importer’s bank send the credit to exporter’s bank. Buyer bank deliver letter of credit to seller bank. Seller deliver his goods to Carrier Company and receive bill of lading from carrier company. The seller presents bill of lading to his bank. Bank (seller) send bill of lading to bank (buyer), and the buyer bank gives documents to buyer and claim for payments, seller show its documents to the carrier company to receive his goods.Letter of credit(LC)used in international transactions to ensure that the payments will be received where the buyer and seller do not know each other and they are operating in different counties.