A bank guarantee is a bank’s undertaking to pay a beneficiary if its customer fails to meet the obligation described in the guarantee. Guarantees can support payment, performance, advance-payment or bid obligations. The wording defines the trigger, amount, expiry and evidence required.
How is Bank Guarantee used?
The applicant asks the bank to issue a guarantee supporting a defined payment or performance obligation to the beneficiary. If the trigger stated in the guarantee occurs, the beneficiary presents the required demand and documents. The bank assesses the demand against the guarantee wording. Expiry, claim format, governing rules and reduction provisions determine whether a demand can be honored.
What the file should show
Retain the underlying contract, issued guarantee, amendments, governing rules, expiry tracking, claim requirements and discharge evidence.
What does Bank Guarantee not establish?
A guarantee is only as useful as its exact terms and issuing bank. Conditions that are unclear or hard to evidence can prevent a successful claim.
