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The Art of Making the Most from Bank Guarantees

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Bank Guarantees are actually flexible instruments. These can be easily issued towards a benefit of both buyers and sellers. Performance of a diverse range of obligations is promised on-demand or even under accessory.

Bank guarantees are very simple yet powerful instrument for removing risk factor related to different stages of commercial transactions. These are consistently growing in popularity. When business engages a bank for the issuance of guarantee to the beneficiary, the bank guarantees that in case, the business fails to meet contract based obligations for any reason, it pays out a sum. This can be either done on demand or after some conditions mentioned in the guarantee are met. These flexible instruments can be issued to benefit buyers as well as sellers.

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Business that Benefit Using Guarantees

Regardless of the type and size of business you are in, guarantees will benefit you. A BG provider has a diverse customer base. These providers work with smaller companies and startups doing their first export or import projects and even large corporate owning their own trade finance departments and a worldwide banking network. This is the best thing about guarantees. One can use the same instrument for importing bags and for exporting complicated construction projects.

Who Benefits from Guarantees?

Each guarantee has a beneficiary and an issuer. Hence, it is not a one-sided deal. Any well-constructed guarantee will benefit both parties as it allows for some impossible transactions. For instance, the advance payment guarantee (a type of guarantee) that comes without the kind of protection it should offer will fail to attract customers willing to pay cash in advance. Despite the fact the seller is under the burden of issuing a guarantee, they simply get a liquidity boost of receiving money upfront in return. This may be more affordable as compared to other ways of financing processes.

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Room for Negotiation

Usually, terms and conditions of guarantee are presented by the beneficiary. This is done on the understanding that all conditions are non-negotiable. In reality, the wording is virtually always negotiable. However, it is important that you understand the things you can change and the reasons behind it. These vary based on the specific market type, norms of industry and individual’s nature.

The idea is to consult advisors at the bank and understand the terms well. These guys are experienced in handling over hundreds and thousands of guarantee negotiations. They are the right people to suggest you whether a particular guarantee wording is worth fighting. Crystal clear and unambiguous wording is favorable for all.

Choosing a BG Provider

Experience matters a lot. The bank you choose should hold a deep understanding of your business, the markets, clients, and industry niche and practice of issuing as well as managing guarantees. It is important to check ratings, especially when larger projects are involved. In any case, a bank guarantee will function only because the beneficiary believes that the bank can make the most of the contract when things go wrong. In this case, both parties should be confident that bank will be present under all circumstances for years.

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