Glossary term
Bank Guarantee
A bank’s undertaking to pay a beneficiary if its customer fails to perform an obligation.
An undertaking by a bank to pay a named beneficiary if the bank’s customer does not perform. In trade it commonly secures advance payments, performance obligations or customs liabilities.
Guarantees are usually payable on demand against a statement of default, so the beneficiary need not prove loss to call one. That is precisely why the wording of a guarantee is negotiated as carefully as the contract behind it.