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Issuing an international banking

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Issuing an international banking

An International Guarantee allows an importer or exporter to cover the different risks inherent in foreign trade operations.

The vast majority of Guarantees are issued using the Swift system and comply with the "ICC Uniform Rules for Demand Guarantees, URDG 758".

These rules are drawn up by the International Chamber of Commerce and are accepted by foreign trade agents.

The different parties involved in an international guarantee operation are:

  • Ordering Party: The ordering party must guarantee a condition of the commercial operation; therefore it can be the importer or the exporter.
  • Beneficiary: the beneficiary receives the guarantee in their favour, and therefore could be the importer or the exporter.
  • Issuing bank : this is the guarantor bank; it guarantees on behalf of the ordering party.
  • Advising/receiving bank : this bank receives the guarantee and must advise their customer accordingly.

The ordering party and beneficiary should agree on the following main points:

  • Amount and currency.
  • Guarantee expiry date.
  • Scope of the guarantee.
  • Wording of the guarantee.
  • Applicable rules in the event of a dispute.

When the beneficiary receives the guarantee, they must check to make sure that all the information reflected in the wording of the guarantee corresponds to the agreements reached previously with the ordering party.

Over time, commercial operations may undergo changes in their conditions, and this can affect the terms of the guarantee.

For that reason, all the terms of the guarantee can be modified at the request of the ordering party, provided they are accepted by the beneficiary.

The functioning of a guarantee can be divided into two stages:

  • Arrangement and notification:
    • 1. Contract of purchase/sale: the starting point should be the negotiation of all conditions between importer and exporter.
    • 2. Application and arrangement: once all the agreements have been made, the ordering party will go to their bank to request the issuance of the guarantee.
    • 3. Issue of the guarantee: the ordering party’s bank will issue the operation by means of a Swift message.
    • 4. Notification that the guarantee has been received: the receiving bank will notify their customer that the guarantee has been received.
    • 5. Provided the ordering party fulfils their obligations, the cycle concludes here and the guarantee expires without being executed.
  • Execution:
    • 6. In the event that the ordering party fails to meet their obligations, the beneficiary will present the documents to their bank to execute the guarantee.
    • 7. Documents sent: the receiving bank will send the documents to the issuing bank.
    • 8. Notification sent to ordering party and amount debited from their account: provided the documents presented are correct.
    • 9. Funds sent: the issuing bank will send the funds to the receiving bank, which will credit them to the beneficiary.
    • 10. Funds credited to beneficiary.
esquema garantias internacionales