Guarantees are the safest way to ensure that you do not loose when contractual agreements are breached. A standby letter of credit provides the safety net you require to avoid losses and ensure that you recover your money in case a contract is not honored. Goodwill is not always the best way to approach business.
The industries that commonly use this as collateral include shipment, service delivery and construction. It is issued from a bank or financing institution to confirm that you will still get your payments if the contractor, supplier or service provider fails to honor his obligation. For international transactions, the letter is best issued by a financial institution that is accredited to operate in both jurisdictions.
The bank issuing the guarantee knows your contractor or supplier and can easily recover the money in case he defaults. It has evaluated his creditworthiness and known how much they can cover. This makes it difficult for the contractor to default since he will face penalties.
A contractor carrying out a project in Dubai would be required to provide a guarantee that it will be completed according to desired standards and in time. Failure to fulfill these terms would mean that the investor looses on revenue from the project. If the contractor abandons the project, it would force the investor to hire another firm. The bank reimburses the money to cover for lost time and facilitate completion.
Some suppliers of goods and services are likely to bleach your trust. They may fail to fulfill the terms of a contract because of other factors. The factors range from financial crunch to delays in payments from their suppliers or clients. The bank or financial institution provides a buffer to cushion you against any such losses.
There are cases where suppliers or contractors go out of business before fulfilling their contractual agreements. As a client, you do not have the mandate or capacity to attach their assets and recover your money. It is likely that you do not have the resources either. The process of recovery is also likely to cost you a lot of money and time. Banks have the infrastructure, mandate and the network to make such a recovery.
The political environment may cause the freezing of assets owned by your supplier or contractor. When you disagree beyond reconciliation, execution of such a contract becomes difficult. Some contractors are plainly deceitful and dishonest to the point of dishonoring contracts. These circumstances require cushioning to cover for any losses that may arise.
The bank requires its client to fulfill certain conditions before granting the letter. As the claimant, you must produce evidence that the contract was bleached and you therefore deserve the compensation. It is however worth noting that such steps are taken in rare and extreme cases.
Standby letters are mainly used for domestic trade while commercial letters suit international trade environment. It is the bank that issues you with the letter under certain terms and conditions. It does not matter the scale of contract you are handling. The safest and most prudent way to do business is to ask for a guarantee.
The industries that commonly use this as collateral include shipment, service delivery and construction. It is issued from a bank or financing institution to confirm that you will still get your payments if the contractor, supplier or service provider fails to honor his obligation. For international transactions, the letter is best issued by a financial institution that is accredited to operate in both jurisdictions.
The bank issuing the guarantee knows your contractor or supplier and can easily recover the money in case he defaults. It has evaluated his creditworthiness and known how much they can cover. This makes it difficult for the contractor to default since he will face penalties.
A contractor carrying out a project in Dubai would be required to provide a guarantee that it will be completed according to desired standards and in time. Failure to fulfill these terms would mean that the investor looses on revenue from the project. If the contractor abandons the project, it would force the investor to hire another firm. The bank reimburses the money to cover for lost time and facilitate completion.
Some suppliers of goods and services are likely to bleach your trust. They may fail to fulfill the terms of a contract because of other factors. The factors range from financial crunch to delays in payments from their suppliers or clients. The bank or financial institution provides a buffer to cushion you against any such losses.
There are cases where suppliers or contractors go out of business before fulfilling their contractual agreements. As a client, you do not have the mandate or capacity to attach their assets and recover your money. It is likely that you do not have the resources either. The process of recovery is also likely to cost you a lot of money and time. Banks have the infrastructure, mandate and the network to make such a recovery.
The political environment may cause the freezing of assets owned by your supplier or contractor. When you disagree beyond reconciliation, execution of such a contract becomes difficult. Some contractors are plainly deceitful and dishonest to the point of dishonoring contracts. These circumstances require cushioning to cover for any losses that may arise.
The bank requires its client to fulfill certain conditions before granting the letter. As the claimant, you must produce evidence that the contract was bleached and you therefore deserve the compensation. It is however worth noting that such steps are taken in rare and extreme cases.
Standby letters are mainly used for domestic trade while commercial letters suit international trade environment. It is the bank that issues you with the letter under certain terms and conditions. It does not matter the scale of contract you are handling. The safest and most prudent way to do business is to ask for a guarantee.