At present, an irrevocable bank guarantee is one of the most popular types of financial services. After all, at the conclusion of each transaction, there is a risk of a party's failure to fulfill its obligations, and these refusals can lead to significant monetary losses. To protect yourself from possible risks - this service is needed. But what is an irrevocable bank guarantee? How is it applied?
A bank guarantee is an obligation (drawn up in writing) to pay a certain amount to the beneficiary, which is assumed by the banking institution, which is the guarantor of the transaction, in case of refusal of the principal's obligations. The financial organization that issues the guarantee is not responsible for fulfilling the terms of the contract between the parties, but, nevertheless, assumes the responsibility to make all payments that are prescribed in the conditions of the issued guarantee. This is not a form of settlement and applies only in case of default to the beneficiary.
Quite often, a banking institution is a guarantor of the financial activities of an enterprise in fulfilling its obligations. This form of obligation is very common between legal entities. The obligation between the financial institution and the lender to pay the debt - this is the provision of an irrevocable bank guarantee.
This
type of transaction is formalized, a contract is concluded between the creditor and the bank, which is signed by the chief accountant of the financial institution, and is also certified by the seal.
There are certain circumstances in which an irrevocable bank guarantee expires. These include: the waiver of your creditor rights when you return a guarantee document to the bank; refusal of the lender from the service and exemption of the bank from its obligations; warranty expiration; performance of these obligations by the debtor.
An irrevocable bank guarantee is an actual confirmation by a financial institution of the solvency of a contractor, as well as the possibility of ensuring the implementation of the obligations specified in the contract. If obligations to the creditor are not fulfilled, then the bank assumes them. This means that he pays certain funds to the creditor upon a written request.
An irrevocable bank guarantee cannot be revoked by a guaranteeing organization. That is, a financial institution that enforces the terms of the transaction is required to fulfill its obligations. This rule is valid for the entire warranty period, which is very important for the customer.
When a contract is drawn up with a bank, it is necessary to clearly and competently prescribe its irrevocability in order to reduce the risk of various disputes arising from the interaction of the parties.
The warranty period almost always extends to the entire duration of the contract with the financial institution.
When a bank issues a guarantee, it has the right to demand compensation for the provision of services from the debtor, as well as compensation for losses in the payment of debts of the contractor. When concluding a transaction 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 ensures the reliability of contracts, as well as trade turnover, which is part of commercial lending.