Unlike the Letter of Credit, the Bank Guarantee is comfort to the buyer or seller for recovering the losses or damages, if the CLIENT, on whose behalf the guarantee is issued, fails to complete or conform to the terms of agreement. By issuing this guarantee, the issuing bank is assuring payment of the certain amount of money (as specified in the bank guarantee) to the beneficiary in case of non-performance of a certain contract according to the terms and conditions contained in the same.
A bank guarantee might be revoked by the seller (beneficiary) when the buyer fails to pay the seller for the goods supplied. In such a situation, the bank pays the beneficiary to the extent of the amount of Bank Guarantee. Similarly, on the other side if the Seller fails to deliver the goods or complete the terms of agreement, the bank guarantee may be cancelled by the buyer.
This instrument or method is often used in Selling, Buying or Service Providing contracts across countries and / or where both the parties have no established business relationships.
