Business and Personal Finance Dictionary

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• LETTERS OF GUARANTEE
  
  There are many types of letters of guarantee. These types of letters of guarantee are concerned with providing safeguards to buyers that suppliers will meet their obligations or vice-versa, and are issued by the supplier's or customer's bank depending on which party seeks the guarantee. While a letter of credit essentially guarantees payment to the exporter, a letter of guarantee provides safeguard that other aspects of the supplier's or customer's obligations will be met. The supplier's or customer's bank is effectively giving a direct guarantee on behalf of the supplier or customer that the supplier's or customer's obligations will be met, and in the event of the supplier's or customer's failure to meet obligations to the other party then the bank undertakes the responsibility for those obligations. Typical obligations covered by letters of guarantee are concerned with: Tender Guarantees (Bid Bonds) - whereby the bank assures the buyer that the supplier will not refuse a contract if awarded. Performance Guarantee - This guarantees that the goods or services are delivered in accordance with contract terms and timescales. Advance Payment Guarantee - This guarantees that any advance payment received by the supplier will be used by the supplier in accordance with the terms of contract between seller and buyer. There are other types of letters of guarantee, including obligations concerning customs and tax, etc, and as with letters of credit, these are complex documents with extremely serious implications. For this reasons suppliers and customers alike must check and obtain necessary validation of any issued letters of guarantee.
  
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