Issuing of Financial Guarantees and Instruments

Banks and other financial entities are able to issue their clients with letters of credit for transacting overseas payments. These letters of credit are often referred to as issuing financial guarantees and instruments that ensure buyers are able to make the payments for the amount they are purchasing. In the event that the buyer fails to make the payment, the bank is obliged to cover the full or remaining amount of the purchase.

Engaging in the issuance of financial guarantees

Letters of credit are primarily used for international payments to ensure that the transaction is received. One of the main cases in which a letter of credit may be issued is in the event that the purchaser does not physically see the goods until they are delivered. Financial institutions that offer financial guarantees and instruments are effectively able to issue letters of credit for their customers who wish to transact overseas payments.

The letter of credit is issued by the buyer’s bank, and is issued in the name of the seller of the goods. The customer is required to approach the bank with a letter stating the conditions of the letter of credit that has been agreed upon by the buyer and seller of the goods. The letter of credit will contain the terms and conditions of release of the funds to the seller, but in order for the funds to be released, all of the terms and conditions will need to be met.

For a bank to specialize in the issuing of financial guarantees and instruments, it must hold a banking license that permits you to take deposits and send wire transfers. It is advised to seek the assistance of a professional consultancy firm in order to complete this procedure in a timely manner, as well as in compliance with the law.