When Do You Need A Letter of Guarantee?

A Credico Capital for letter of guarantee is an important document that clearly states a supplier will get his pay even if the customer fails to make payment. A supplier or buyer may request for a letter of Guarantee when one party is not certain of the financial status of the other party or when there is no previous trade history between both parties. It is a document widely known to reduce the risk and sour tale involved in various kinds of business transactions. It gives assurance to the supplier that he can go into trade with the client involved in the agreement without any previous trade history or record.

As A New Customer

As a buyer, if you get a new supplier you will need to tender this letter to your supplier as he or she has no trade record or history with you. This helps build a certain level of trust and confidence. It mostly occurs when a supplier wants to lease out costly equipment to a new customer.

As a Start-Up

As a startup company, you may need a letter of guarantee if you don’t have enough capital and you need to purchase goods. Since the supplier has no knowledge of the credibility of the company before he can release his goods the letter of guarantee provided by a bank must be tendered.

Trading in Other Areas

When trading within your area you may not need a letter of guarantee but for business transactions outside your country, a supplier will request for this document to be certain you can pay for the product. After spending extra cost to export the goods the supplier needs to be sure he will get his pay even if it means getting it from the bank.

How Letter of Guarantee Is Issued

Before a bank can issue a letter of guarantee you go through certain processes; You will need to apply for a letter of guarantee, once that is done the bank thoroughly examines the application as well as the customer’s previous transactions, after which the bank decides whether the customer meets their expectations and standards. The bank may go ahead to ask for more documents and information from the customer where necessary. Visit Credico capital for more information on how a letter of guarantee is issued.