A bank letter of guarantee is a type of contract issued by a bank on behalf of a customer who has entered a contract to purchase goods from a supplier and promises to meet any financial obligations to the supplier in the event of default. A letter of guarantee may also be issued by a bank on behalf of a call writer guaranteeing that the writer owns the underlying asset and that the bank will deliver the underlying securities should the call be exercised.
Surely, there are other financial options business owners can choose from. But, most business owners prefer a bank letter of guarantee due to these reasons.
To protect buyers and sellers
One of the reasons business owners opt for a bank letter of guarantee is to protect both buyers and sellers from potential losses or damages. Since both buyers and sellers are protected, business owners can take this into advantage. This is possible since business owners can use this solution when they purchase materials for their products. Not to mention, when selling their finished goods, business owners can also benefit from a bank letter of guarantee. Because of this, buying and selling can be easier and safer.
To improve cash flow
When opting for a bank letter of guarantee, business owners can also improve their cash flow. Of course, there are seasons when businesses cannot obtain good profits. Therefore, business owners need to use some of their savings to continue their business. By using a bank letter of guarantee, business owners can improve their cash flow since they can make agreements with other companies on how and when they will pay. As a result, business owners can manage their finances properly which can help improve their finances.
To have better business opportunities
By using a bank letter of guarantee, business owners can also gain better business opportunities. This can be achieved since a bank letter of guarantee can be used for different industries. In addition, when having a bank letter of guarantee, companies are rest assured that your business has the ability to pay for their goods you are purchasing.
With all these wonderful features, business owners can improve their performance and reputation which can help them make their business more successful.
By: William Gomez – Info source from www.business.hsbc.ae/en-gb/managing-risk/productfamily/guarantees
