Bank guarantees are products of credit to ensure the successful completion of the commitments they have made their customers to future international exchanges (can be both import and export and investment).

We could define bank guarantees as the commitment given by the financial institution (guarantor) to pay a certain amount to the beneficiary (usually the exporter) if it presents documents previously agreed upon and which confirm that the other party has not complied with its obligations (the payment of the importer normally). Through a bank guarantee, the exporter is assured of recovering the goods delivered even if the buyer does not pay.

Bank guarantees allow the seller to receive the nominal payment for the merchandise from the bank in the absence of the buyer.

With regard to validity, bank guarantees are not indefinite and they should always be used within their period of validity in a clear and unambiguous way. We say the bank guarantee is no longer valid when the guaranteed obligation has expired and the beneficiary has not requested the guarantee. It is understood that the obligation has been fulfilled and therefore the bank can automatically cancel their commitment.

There are three basic kinds of bank guarantees:

There is a period before the bank guarantees comes to being. Banks can decide to grant the credit and reserves the funds and in the meantime, it assesses the proposal.

Technical bank guarantees are usually give to non for profit organizations, or socially oriented businesses or institutions.

Bank guarantees are most commonly given for economic and financial purposes. Banks commit to fulfill the obligations of the buyer in the case the latter fails to do so. Bank guarantees are useful for commercial and financial transactions.

In the event that the guarantee is made to the importer, it means that the importer has claimed payment for the production or processing of goods to be supplied. That is why the buyer wants to ensure the recovery of the sum advanced for any breach of contract by the other party.

Bank guarantees are also positive for exporters because of the same reasons. Let us say that upon arrival, the importer does not have the funds to pay for the goods he or she had agreed to pay. Under this scenario the bank guarantee will make sure the exporter is compensated.