Purpose of bank guarantee
The main use of a bank guarantee is in the commercial world in general and in international trade life in particular.
When a consumer buys a shirt, he pays for a shirt and at the same time pays a few shekels at the checkout. After all, we have an ‘exchange deal’.
But business gets complicated when a merchant orders ten thousand special coats by special order from a factory in Turkey.
Here the factory owner is afraid to make the coats lest he gets paid.
The merchant is also afraid that the jackets will not be ready on time, and in the summer selling jackets is not so profitable.
This mechanism is called documentary credit for financing or credit or guarantee.
This gap, or rather these concerns, is bridged by the bank guarantee institution.
The merchant can give the manufacturer a bank guarantee to secure the payment, and on the other hand, the manufacturer will give the merchant a bank guarantee to secure the delivery of the goods.