Bank Gauruntee with Bank Transfer

**djltrading** · 12-07-2006, 01:36 AM

hi, i am in the middle of negotiating with suppliers to ship straight to my customers, this si a supplier with a MOQ of 100 so he cannto take paypal as all order will exceed the transaction limit. He has stated that for dropshipping he can accept t/t . i also expressed my concernes as to the safety in these transactions incase he doesnt ship the goods of course. he then said that i should phone my Bank and ask about a Bank Garuntee. So he basically said it was a very safe payment method. what exactly is a Bank Garuntee?

Thanks, Dan

**canada** · 12-07-2006, 01:57 AM

A bank guarantee and a letter of credit are similar in many ways but they're two different things. The main difference between the two credit security instruments is the position of the bank relative to the buyer and seller of a good, service or basket of goods or services in the event of the buyer's default of payment. These financial instruments are often used in trade financing when suppliers, or vendors, are purchasing and selling goods to and from overseas customers with whom they don't have established business relationships.

A bank guarantee is a guarantee made by a bank on behalf of a customer (usually an established corporate customer) should it fail to deliver the payment, essentially making the bank a co-signer for one of its customer's purchases. Should the bank accept that its customer has sufficient funds or credit to authorize the guarantee, it will approve it. A guarantee is a written contract stating that in the event of the borrower being unable or unwilling to pay the debt with a merchant, the bank will act as a guarantor and pay its client's debt to the merchant.

The initial claim is still settled primarily against the bank's client, and not the bank itself. Should the client default, then the bank agrees in the bank guarantee to pay for its client's debts. This is a type of contingent guarantee. A bank guarantee is more risky for the merchant and less risky for the bank. But this is not the case with a letter of credit.

While a letter of credit is a similar, the principal difference is that it is a potential claim against the bank, rather than a bank's client. For example, a seller may request that a buyer be provided with a letter of credit, which must be obtained from a bank and which substitutes the bank's credit for that of its client. In the event that the borrower defaults, the seller would go the buyer's bank for the payment. The seller's risk is mitigated because it is unlikely that the bank will be unable to pay the debt. A letter of credit is less risky for the merchant, but more risky for a bank.

Banks accept full liability in both cases. With a bank guarantee, a client can default and the bank assumes the liability. With a line of credit, liability rests solely with the bank, which then collects the money from its client.

From http://www.investopedia.com/ask/answers/06/202005.asp

**djltrading** · 12-07-2006, 02:03 AM

so basically the bank just garuntee that payment will ge to the seller? but does it cover me if i pay for the goods and they dont arive? thanks

**canada** · 12-07-2006, 02:35 AM

Does the seller have a bank guarantee or does he want you to get a bank guarantee from your local bank ?

tantk · 12-07-2006, 03:38 AM

For Letter of Credit, see this thread L/c

**djltrading** · 12-07-2006, 10:46 AM

well, i was talkin to him and i was asking how safe t/t is and he said it is really safe because of Bank Garuntee. ????????????

**canada** · 12-07-2006, 09:03 PM

He need`s to provide bank guarantee documents to you and you need to verified them with his issuing bank.Don`t transfer any money to him until you verify the seller is legitimate.

Scott