A bank guarantee represents an irrevocable obligation of the bank to pay a specified amount of money if the
party for which the bank is giving the guarantee does not fulfill its contractual obligations.
Several types of guarantees:
- A payment guarantee is used to guarantee the seller that the buyer will fulfill its payment obligations as stated in the contract.
- A tender guarantee (bid bond) is used for participation in international tenders, such a guarantee covers the organizers’ expenses in case when a participant revokes its bid or does not accept the offer.
- A performance guarantee is used to strengthen the contractual relationship between a buyer and a seller. It guarantees compensation of the agreed-upon amount in case the delivery terms or other contractual obligations of the seller are not fulfilled as agreed upon in the contract.
- An advance payment guarantee is used when the contract provides for advance payment to be made to the seller, and it guarantees that the advance payment will be returned to the buyer if the seller does not fulfill its obligations on delivery of goods or services.
