Guarantees are the safest way to ensure that you do not loose when contractual agreements are breached. A standby letter of credit provides the safety net you require to avoid losses and ensure that you recover your money in case a contract is not honored. Goodwill is not always the best way to approach business.
Service delivery, shipment and construction industry players are the greatest beneficiaries of this guarantee. The guarantee is issued by a bank by stating that it will release an amount worth of the contract in case anything happens. They provide a cushion that you are covered in case of breach of contract. For international transactions, the letter should come from a bank operating in both jurisdictions.
The bank issuing the guarantee knows your contractor or supplier and can easily recover the money in case he defaults. It has evaluated his creditworthiness and known how much they can cover. This makes it difficult for the contractor to default since he will face penalties.
A perfect example is a contractor working in Dubai. The project is supposed to be completed within a set time frame. The letter of credit is issued as a guarantee that the deadline will be met. When this does not happen, the client collects money from the guarantor as compensation for lost time and revenue. This money is used to cover for the cost of hiring another contractor or loss of business.
The letters are cushions against breached trust. There are reasons why the contractor may fail to pay in case the transaction or project does not go as planned. He is likely to be waiting for his customers to pay him and is therefore facing a financial crunch. You are assured that you have a buffer for your finances and projects.
Your contractor or supplier is likely to have gone out of business. This makes it difficult to attach his assets and force him to refund or reimburse your money. Banks have the legal mandate to attach properties of their creditors. As a client, this could be a lengthy process or you do not have the mandate. It is easier for banks to recover monies in case of default.
The political environment may cause the freezing of assets owned by your supplier or contractor. When you disagree beyond reconciliation, execution of such a contract becomes difficult. Some contractors are plainly deceitful and dishonest to the point of dishonoring contracts. These circumstances require cushioning to cover for any losses that may arise.
The client has to fulfill certain obligations before the letter is granted. His creditworthiness must be to the tune of the contract or more. When claiming reimbursement, you must show proof that the contract was not fulfilled and thus you deserve payment. Such a guarantee is only executed in extreme and very rare cases.
Standby letters are mainly used for domestic trade while commercial letters suit international trade environment. It is the bank that issues you with the letter under certain terms and conditions. It does not matter the scale of contract you are handling. The safest and most prudent way to do business is to ask for a guarantee.
Service delivery, shipment and construction industry players are the greatest beneficiaries of this guarantee. The guarantee is issued by a bank by stating that it will release an amount worth of the contract in case anything happens. They provide a cushion that you are covered in case of breach of contract. For international transactions, the letter should come from a bank operating in both jurisdictions.
The bank issuing the guarantee knows your contractor or supplier and can easily recover the money in case he defaults. It has evaluated his creditworthiness and known how much they can cover. This makes it difficult for the contractor to default since he will face penalties.
A perfect example is a contractor working in Dubai. The project is supposed to be completed within a set time frame. The letter of credit is issued as a guarantee that the deadline will be met. When this does not happen, the client collects money from the guarantor as compensation for lost time and revenue. This money is used to cover for the cost of hiring another contractor or loss of business.
The letters are cushions against breached trust. There are reasons why the contractor may fail to pay in case the transaction or project does not go as planned. He is likely to be waiting for his customers to pay him and is therefore facing a financial crunch. You are assured that you have a buffer for your finances and projects.
Your contractor or supplier is likely to have gone out of business. This makes it difficult to attach his assets and force him to refund or reimburse your money. Banks have the legal mandate to attach properties of their creditors. As a client, this could be a lengthy process or you do not have the mandate. It is easier for banks to recover monies in case of default.
The political environment may cause the freezing of assets owned by your supplier or contractor. When you disagree beyond reconciliation, execution of such a contract becomes difficult. Some contractors are plainly deceitful and dishonest to the point of dishonoring contracts. These circumstances require cushioning to cover for any losses that may arise.
The client has to fulfill certain obligations before the letter is granted. His creditworthiness must be to the tune of the contract or more. When claiming reimbursement, you must show proof that the contract was not fulfilled and thus you deserve payment. Such a guarantee is only executed in extreme and very rare cases.
Standby letters are mainly used for domestic trade while commercial letters suit international trade environment. It is the bank that issues you with the letter under certain terms and conditions. It does not matter the scale of contract you are handling. The safest and most prudent way to do business is to ask for a guarantee.
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