Bank guaratee & letter of credit

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Jinit

Jinit (Querist)
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07 October 2011 The meaning of both along with example.
The difference between both

satpal

satpal (Expert)
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07 October 2011 In bank guarantee bank undertakes to pay the sum agreed to the person to whom the bank guarantee submitted.

look at this

You need to submit a BG TO custom authority for rs. 5 lac . Now you will request to bank is issue bg in f/o govt. of india through custom authority . Bank will give bank guarantee (bank undertake to pay Rs. 5 lac in the agreed period only if the authority ask to pay )

How ever it will happen only when you will not comply the conditions of the authority .

Here bank will ask you a counter guarantee or any other security as per terms and cond. settled in you and your bank.

In case of LETTER OF CREDIT

in common practice it is called LC it may be FLC ( Foreign letter of credit ) or ILC ( Inland letter of credit )

In this case bank will pay to the party as soon as the flC OR ILC will be presented to the bank. ( look at this

You are going to import a mach costing Rs. 2 lac usd from usa in this case the supplier will ask you to pay in advance or you can apply to bank to issue a flc ( in this case the supplier will get assured payment as the bank's credit worthness is not doubted ) he can also get advance after submitting flc to his bank.

Hope it will clear you question

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