Charan Raju
(132 Points)
Replied 13 November 2018
Hi,
Letter of Guarantee is an assurance from the banker to the payee to pay to him on behalf of the applicant.
Ex:
Payee - Supplier of Goods
Applicant - Buyer of Goods
Bank assures the seller on behalf of the buyer of the goods/services. It is nothing but a credit assurance to the seller.
So, In case the buyer is unable to pay the amount then the LC issued bank needs to honour the payment.
Hope ths helps
vishnu R
(JR ASST ACCONTANT)
(59 Points)
Replied 13 November 2018
Charan Raju
(132 Points)
Replied 13 November 2018
Bank makes the payment on behalf of the buyer...
Bank will then debit the amount from the buyers account..
However, bank take into account of the credit worthiness of the buyer before granting LOC
CAclubindia
