Do you need to limit counterparty default risk while demonstrating financial credibility to new suppliers?
A bank guarantee is an independent obligation by a bank to pay the beneficiary of the guarantee (the entitled party) the amount indicated in the guarantee (the guarantee sum) if the principal of the guarantee whose guarantee was issued fails to meet his obligation. Payment to the beneficiary of the guarantee is made directly by the guarantor bank (the bank of the principal) or through another bank after the beneficiary has fulfilled a guarantee of certain conditions of payment, which can be determined on the basis of contractual documents such as invoices or transport documents.
The advantage of a bank guarantee is that it limits the counterparty default risk, and it is an indispensable business support tool that will ensure your credibility with a new contractor. By becoming a bank guarantee beneficiary, you therefore minimise the risk of your contractor failing to deliver a product or service.