A letter of guarantee is a document issued by a financial institution on behalf of their client, to assure the supplier that the necessary payments would be made by the customer once certain requirements have been met. This document must be error-free and the terms and conditions must be stated clearly and agreed to by both parties. If you want your business transactions to become faster and easier, you’ll need to know how to draft an acceptable letter of guarantee. It is extremely important, especially in international trade. Below are key things to care of before signing the LG.
Review Relevant Documents
Before you start drafting a letter of guarantee, you should go through all the documents that are related to the contract as many times as you can, so that you don’t miss anything. You need to be sure that you understand the costs and consequences involved. It would be better if you got a lawyer to review the contract and explain certain clauses and concepts to you.
Set Up A Meeting with Your Bank
Since your financial institution is responsible for issuing this letter and vouching for you, it is important that you meet with them to understand the state of things. If you have any questions about the contract, don’t be scared to ask. Remember, it is better to be safe than sorry. There are shady people everywhere. You need to be sure that you’re not getting involved in a very risky deal.
If you’re not satisfied with the terms and conditions, now would be the time to go over them with the other party. Ensure that you reach a fair agreement and that you are comfortable with the policies. You can involve lawyers from both parties to avoid loopholes.
Include the Details
Now, you can write down the important details such as contact details of the vendor and issuing financial institution, the products or services covered by the guarantee, the duration of the guarantee, and the terms and conditions. There are different types of guarantee letters so be sure to draft your letter according to the nature of the transaction.
Format the Letter
A letter of guarantee, like most official documents, needs to be typed. This is the final stage so ensure that it is completely error-free. After making the necessary corrections, you can then proceed to get all the signatures you need. The bank will take it up from here.
At Credico Capital we take care of all your letter of guarantee requirements. Give us a call today to find out more.