Banking
BANK
levelling
B
anks are investing heavily into new digital channels and platforms and corporates for the most part have been adopting these new and inno-
vative solutions more readily. Whilst the pandemic has been the main initiator of these changes, countless corporates are still trapped in laborious, manual and paper-based processes whilst sacrificing transparency, efficiency and the agility that comes with the use of innovative digital solutions. Some of the main instruments relevant to treasuries; letters of credit (LCs) and bank guarantees including standby LCs and rental guarantees have been for the most part paper-intense despite their ubiquitous use across all business verticals and to this day use a lot of these antiquated processes. In this piece, we will address how corporates today are able to modernise their communications with their banks moving away from the existing manual processes and leverage modern initiatives that allow them to streamline and manage their entire workflows and working capital efficiently.
What are bank guarantees used for? Although letters of credit and bank guarantees serve different purposes, their fundamental difference lies in the fact that a letter of credit ensures that a transaction goes ahead as planned, whereas a bank guarantee reduces any loss incurred if the transaction does not go to plan. Bank guarantees are commonly used in trade finance. They offer numerous benefits, protecting both importers and exporters in cross-border trade transactions. Chief among the benefits of using bank guarantees is that they grant an absolute guarantee of performance and payment to the exporter in international trade deals. Traditional risk-related business activities can be taken care of by taking out bank guarantees. The importer is much more likely to negotiate favourable deal terms as the exporter no longer bears any payment default risk. Bank Guarantees are often used in trade financing when buyers and sellers are purchasing and selling goods to and from overseas
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