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Difference between lc & bg

Narpina.Siva Ramya (Article asst.) (26 Points)

29 August 2012

Helloo every one....Can any one tell me the difference between LC(Letter of Credit) & BG(Bank Guarantee) in detail.

Thanks in advance..........

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Abhinay Kesanapalli (Articles asst.) (84 Points)
Replied 29 August 2012

Major difference between a LC and a BG is that the issuing bank does not wait for a default from the buyer unlike BG where a formal request is made by the supplier to this effect. In this sense, a BG is more risky for the supplier as he has to wait till the bank clears his dues. Bank is liable to pay in the case of a BG in case of a default by the buyer whereas an LC is a direct responsibility of the issuing bank. BG is therefore called a second line of defense while LC guarantees timely payments for the supplier. LC is more of an obligation on the part of the issuing bank that has to transfer the funds once criterion mentioned in the contract are fulfilled. LC is thus more for ensuring timely and correct payments.

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