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Major Difference between Letter Of Credit Vs Bank Guarantee

Letter of Credit vs Bank Guarantee

Letters of Credit and Bank Guarantees mostly being used in international trade transactions. Both LC & BG are the guarantee that is issued by banks to give payment commitment to the counter party. You may find few similarities between Letter of Credit vs Bank Guarantee. But actually, both are individual Bank Instruments that serve a specific purpose. LC assures payment, only if the seller complies with the LC terms. On the other hand, BG MT760 assures payment, only in case of buyers default in making the payment.

Definition: Letter Of Credit vs Bank Guarantee

Letters of Credit and Bank Guarantee, considered as the popular trade finance instruments; most often used by traders to conclude trade deals on time; by giving the required payment assurance to the counter parties. Both MT700 & MT760 issued on behalf of the client and in favor of their seller to assure the fulfillment of commitments as agreed in the contract.

What is Letters of Credit?

Letters of Credit issued on behalf of the buyer assures the seller that they will receive the payment for the supplied goods on time and on the specified currency. Also, it guarantees, that in case, if the buyer is unable to make the payment; then the bank will be obliged to pay the seller as agreed in the contract. Further to receive the payment for the supplied goods, the seller must need to present the shipping documents as stated in the LC. So, in the LC payment term, the payment will be made only; if the specific conditions are fulfilled as per the issued LC.

What is Bank Guarantee?

Bank Guarantees issued by a bank assures the supplier that in case if the buyer defaults in making the payment, then the banks will meet the payment commitments made by the buyer. BG helps companies to mitigate any risk and plays a huge role in facilitating high value trade transactions. In businesses, when both parties obliged to do certain tasks for the successful completion of the project, then they use Bank Guarantees as a way of showing their credibility and financial strength.

Major Difference between Letter Of Credit vs Bank Guarantee

When it comes to international trade deals to secure the trade, the seller requests their buyer to furnish an LC MT700 before proceed with the deal. Accordingly, the buyer will provide the LC in favor of the seller. And this LC gives assurance to the seller that they will receive the payment within a certain set time limit after shipment. And in case, if the buyer didn’t make the payment as agreed, then the bank will pay the seller.

Likewise, MT760 Guarantees mostly used in bulk trade deals to build trust between two parties. This BG assures the seller that the bank will be liable to pay for the supplied goods, in case if the buyer defaults in payment due to a financial crisis or other issues. Since it comes with a payment guarantee, suppliers prefer to work with buyers who can provide BG MT760 in their favor.

LCs and BGs have the same functionality which gives the required payment assurance to the counter parties. That’s why most traders prefer to use these instruments in their trade transactions. Hope, you got a clear idea on MT700 vs MT760. Now, it’s your time to decide whether you require LC or BG for your upcoming business deals.

How to Get LC & BG?

It doesn’t matter whether you choose LC MT700 or BG MT760 for your trade deal; to apply these, you may have two choices – Contacting Banks or getting help from private Trade Finance Providers like Bronze Wing Trading. But if you contact other sources to avail LCs or BGs; you need to provide cash margin or tangible collateral to get the MT700 & MT760 issued.

But by contacting us, you can get the required LC & BG without providing a cash margin & without blocking cash funds. We not only provide LC & BG, we also support traders by providing Standby LC & Comfort Letter from European Banks.

Contact us now to get LC MT700 & BG MT760 from European Banks in just 48hrs!

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