Types of Guarantees

Various Types of Bank Guarantees–
Financial Guarantee: These are guarantees issued by banks on behalf of the customers, in lieu of the customer being required to deposit cash security or earnest money.–
Performance Guarantee: These are guarantees issued by banks on behalf of its customers whereby the bank assures a third party that the customer will perform the contract entered into by the customer as per the conditions stipulated in the contract, failing which bank will compensate the third party up to which the amount specified in the guarantee.–
Deferred Payment Guarantee: Under this type of the guarantee, the banker guarantees payment of installments over a period of time. This type of the guarantee is required when the customer on credit purchases goods/machinery and payment is to be made in installments on specified dates. A deferred payment guarantee constitutes an undertaking on the part of the bank to make payment of deferred installments to the seller (beneficiary) on due dates in the event of default by the customer (buyer).–
Statutory Guarantee: These are guarantees issued by banks favoring Courts and other statutory authorities guaranteeing that the customer will honor his commitments imposed on under law, failing which bank will compensate to the extent of the amount guaranteed.–
Issuance of Bank Guarantee ? Precautions to be taken–
The liability of the bank under a guarantee depends on two fundamental criteria?s, the amount guaranteed and the period of the guarantee.

Accounting & Finance for Banking

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