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Bank Guarantee

Meaning
A guarantee given by a bank to a third person, to pay him a certain sum on behalf of the banks customer, on the customer failing to fulfil any contractual or legal obligations towards the third person.

Types of Bank Guarantee


Financial Guarantee Performance Guarantee Deferred Payment Guarantee

Types of Bank Guarantee


Financial Guarantee
Issued by banks on behalf of the customers requirements to deposit a cash security or earnest money. Mostly used on behalf of customers dealing with Government departments. In case the contractor does not take up contract of awarded then the Government departments invoke the guarantee and collect the money from the banks.

Types of Bank Guarantee


Performance Guarantee Bank assures a third party, that the customer will perform the contract entered into by the customer as per the condition stipulated in the contract. Failing will compensate the third party up to the amount specified in the guarantee. Specific date / time duration is also given.

Types of Bank Guarantee


Deferred Payment Guarantee
Under this type of guarantee, the banker guarantees payment of installments spread over a period of time. This type of guarantee is required, when goods or machinery are purchased by a customer on long-term credit and the payment is to be made in installments. A differed payment guarantee constitutes an undertaking on the part of the bank to make payments of deferred installments to the seller on the due dates, in the event of default by the customer.

Other types of guarantee


Excise guarantee - submitted as excise security to guarantee payment of one or more tax liabilities; it may replace a cash deposit or surety. y Customs guarantee - secures the payment of customs duties, taxes or other payments to the Customs Office; it may replace a cash deposit or surety. y Lottery guarantee - ensures the payment or surrender of prizes in a lottery/promotion action/game organised by the principal. y Rent payment guarantee - secures a payment of rent.

Benefits as a Beneficiary
Increase security of trade transaction with your counterparty, Limit the risk of counterparty's default against contractual terms and conditions, Efficiently collect your receivables with the use of the guarantee, Quickly receive payment of the claimed amount regardless of the counterparty's financial situation, also without delay, which is usually involved with court proceedings, The Bank will take the counterparty risk from you.

Benefits as a Principal
strengthen the credibility of your business as seen by the counterparty thanks to the renown of Bank Millennium SA as the guaranteeing bank, ensure further effective cooperation with your counterparty as you will not have to commit your own money to secure the transaction, maintain financial liquidity, we will agree with you the amount of the guarantee depending on the terms and conditions of your contract with the guarantee beneficiary, get professional assistance and advice from your Biznes Advisor when submitting documents and assessing the agreement, which will underlie the guarantee and also when verifying any potential claims under the guarantee.

Precautions to be take in Issuance of Bank Guarantee


Amount Guaranteed Period of Guarantee Claim period in a guarantee Counter Guarantee and Other Security.

Precautions to be take in Payment under Bank Guarantee


Proper Invocation of Guarantee No Injunction Prohibiting Payment