Trade guarantees often play a vital role in international trade. A trade guarantee is an independent undertaking by a bank, who are known as the 'guarantor'. This undertaking means that the guarantor (bank) becomes obligated to pay an amount as specified in the guarantee.
In many ways a guarantee is a very simple instrument: a bank (the guarantor) guarantees to pay a certain amount of money provided prescribed documentation is presented to the guarantor.
Trade guarantees and international trade
In internationally trading situations that require a third party (bank) to guarantee to pay a sum of money to one party if the counterparty defaults can arise.
For example, if the exporter fails to deliver products within the agreed terms, the guarantee transfers the creditworthiness of the instructing party of the guarantee to the bank (the guarantor).
Note the guarantor guarantees only to pay an amount of money to the beneficiary, not to deliver the goods or whatever else may be the subject of the guarantee.
Trade guarantees help to facilitate international trade transactions by reducing settlement risk for sellers and expedite the exporting of goods to buyers.
- Reduced risk: You can be assured of receiving payment for goods you export.
- Certainty: Trade guarantees provide you with with peace of mind, knowing that your cash flows will not be affected by international trade debts.
- Company profile.
- Latest financials and management accounts.
- Summary of exposure with other financial institutions.
- Shareholders interest in the business and / Family tree.
- Active investment account with Mercantile Bank where security (cash) will be pledged.
- Period of the LC/Expiry date of LG.
- Description of the goods/LG conditions.
- Marital status of the parties who will be signing security forms.
- If married otherwise or divorced proof such as an antenuptial contract or decree of divorce.
How Incompass can assist with trade guarantees
As one of South Africa's leading providers of foreign exchange services our team can assist you with in obtaining a competitively priced trade guarantee.
Please note that our bank network only provide trade guarantees that are fully cash covered and signing of security forms such as suretyship, pledged and cession will be required before they are able to issue you with a trade guarantee.
Start trading more securely today.
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