Bank guarantee – what are the advantages?

Bank guarantee is one of the banking tools that is becoming increasingly popular in the financial and business world. It constitutes the bank’s obligation to pay a specific amount to the beneficiary of the guarantee if the ordering party (customer of the bank) fails to fulfill their liabilities. This solution offers a number of advantages that make it more attractive to both entrepreneurs and business partners alike.

Trust and credibility in the business world 

One of the most important aspects of using a bank guarantee is the increase of trust and credibility between the parties of a transaction. Such guarantee serves as a proof of the company’s financial stability, which may help in establishing and maintaining business relations. Trade partners are more eager to conclude agreements with companies that are able to present such a safeguard because it reduces the risk of non-performance. Bank guarantee provides the beneficiary with protection against the risk of insolvency or the non-performance of obligations by a particular contractor. In a situation when the ordering party is unable to meet all their obligations, the bank assumes the responsibility for the payment of funds. This ensures financial certainty and stability, which is extremely important in a dynamic and often unpredictable market environment.  

Favorable financing conditions 

For companies with a bank guarantee it will be easier to obtain credits and other forms of financing. Banks and financial institutions are more inclined towards granting loans to entities that have such safeguards. A bank guarantee increases the company’s credibility in the lenders’ eyes, which may lead to establishing more favorable conditions of financing. The use of a tool like the guarantee in question will also improve the company’s financial liquidity. Thus, the ordering party does not need to block high amounts of money in order to secure the transaction. Instead, they may use the funds for the ongoing operating activities, which will increase the effectiveness of the management of working capital.  

Adapting to the customer’s needs 

Bank guarantee is a very flexible solution and it can be adjusted to the individual business needs. It can cover various forms, such as a bid guarantee, a performance guarantee or a payment guarantee for high value transactions or return of an advance payment. As a result, this tool can be used in a broad array of activities, from construction contracts to international trade.  

To sum up – bank guarantee is an effective risk management tool used in business. It ensures financial protection, increases the company’s credibility and gives access to financing. Thanks to its flexibility, this solution can be used in a variety of situations, making it a universal instrument which supports the company’s growth and financial stability.   

In times of globalization and a dynamically evolving market, having a bank guarantee may be the key element in building the competitive advantage. At MDDP Outsourcing, we provide help in applying various types of banking tools, including handling of bank guarantees.. What seems complicated in theory, for our specialists is just everyday work. Proficiency in electronic banking modules, contact with bank employees – those are just a few examples of our company’s many advantages. By choosing MDDP Outsourcing, you can be certain that you chose professional and safe support within the scope of finances and accounting.  

Author: Magdalena Filipek Settlement Department Expert at the accounting office in Warsaw