A bank guarantee is always in writing and constitutes an irrevocable written obligation of the bank to satisfy the beneficiary (recipient) up to the amount of a certain monetary sum in accordance with the content of the deed of guarantee provided that a certain third person (principal) fails to fulfil a certain obligation or other terms and conditions are fulfilled than those specified in the deed of guarantee.
Advantages of a bank guarantee
- A bank guarantee can secure any type of transaction, delivery of goods or services, the sale of real property, or rental payments.
- A bank guarantee can help improve the cash flow (e.g. in case of an advance payment guarantee or a guarantee for retention money, the principal can handle the financial means for which the Bank has granted a guarantee and which the ordering party would not otherwise provide).
- The bank makes payments arising from the bank guarantee using its own financial means without any delay, which means certainty for the beneficiary (guarantee recipient) that his claims from the principal are always secured.
- Bank guarantees are securing instruments of an abstract nature, allowing the beneficiary (recipient/ordering party) to receive payment from the guaranteeing bank without any court proceedings.
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