Verification aspects of Undated security cheque with signature verification letter and Bank Guarantees

Most of the business deals , customers required to give advance payment to the suppliers as per the payment term mentioned in the LPO. In these cases, customers will ask for Advance payment bank guarantee or Undated security cheque with signature verification from cheque issuing bank, if such terms are mentioned in the LPO.

Most of these cases customers prefer to collect Advance Payment bank guarantee from the suppliers because in this case the customer can easily and directly raise claims to bank for any  deviation from the LPO terms, such as fails to deliver the goods to customer, goods delivered but it is not as per the terms of the LPO and suppliers not willing to re-supply the goods as per the LPO. Etc. More over collecting Bank guarantee is more authentic than that of collecting Undated security cheque from suppliers.

In the case of undated security cheque , any deviations or discrepencies happens, then the customer can present the cheque to the  supplier’s bank clear the cheque.

Sometimes  supplier’s bank A/c  have no balance or the suppliers bank balance is not enough to honour the cheque, then the bank will dishonor the cheque.In such situation, the customer required to file legal case against the supplier to get the cheque amount and bouncing of cheque with some compensation for the damages.

Verification aspects of undated security cheque

While collecting the undated security cheque with signature verification , Customers required to consider  the following  points to verify the authenticity of the undated security cheque .such as:-

1)Ensure that the cheque is an undated one other wise it’s validity will restricted for a period of 6 months. So always ensure that security cheque should be undated one.

2) Name of the cheque should in the name of the customer who give advanced cash to customer.

3)Verify the signature with the signature letter from the bank.

4)Cheque amount should be  equal to the advance amount paid to the suppliers.

5)Verify the Bank Account and ensure that the said bank A/c is active and valid in all aspects 

           

Verification aspects of undated Bank Guarantee

While collecting the bank guarantee , Customers required to consider  the following  points to verify the authenticity of the bank guarantee such as:

 1) Bank guarantee should addressed to the customer’s name.

          2) Bank Guarantee should mention guaranteed amount.

      3) Bank guarantee should mention the validity date or expiry date of the  guarantee.

      4)Bank guarantee should mention the LPO NO and other document details  relevant for the transaction.
         

              

PERFORMANCE BANK GUARANTEE - PRACTICAL ASPECT

A performance bank guarantee provides a secure promise of compensation amount  by the bank  to the customer in the event that a supplier or sub contractor  does not meet delivery terms or other provisions in the contract. 

As per the agreement between the supplier and the customer, the supplier submit  the performance guarantee to the customer as a security for the proper performance of the contract.

If any breach of provisions of performance of contract or subcontract, then the customer can submit this performance guarantee to the bank and can claim for the compensation amount mentioned in the Performance Guarantee from the bank.

 Normally the customer will return the performance bank guarantee to the sub -contractor or supplier only after completing  the defect liability period (DLP) of that  particular contract and after particular agreed period  after completing the delivery of goods respectively.

Performance bank guarantee amount normally equal to 10% or 5% of total contract amount or LPO amount of the subcontract  or supplier respectively. It also depend on the negotiation and agreement between the parties concerned  in the contract.

Example.  A Ltd ordered 100 TV from B Ltd for AED 100,000/-  and A Ltd asked for a performance bank guarantee for AED 10,000/- ( as 10% of LPO amount)  for a period of 1year after the delivery of T.V.

 BLtd submit the performance bank guarantee to A Ltd. And out of the 100 TVs 5 Tvs are not working and A Ltd asked to B Ltd to replace it. And B Ltd not willing to replace it. Then A Ltd submit this performance guarantee to the Bank and can claimed for compensation amount of that 5 TVs.

Based on A Ltd’s claim for compensation  and documents verified, bank will award the compensation to A Ltd and bank will recover this  amount from B Ltd. This is the working aspect of performance Bank Guarntee.

ADVANCE PAYMENT BANK GUARANTEE - MEANING

Advance Payment Bank Guranatee  used as a security against Advance Amount paid. For Example, when any customer give any advance amount to their supplier and then that customer have no surety that supplier will deliver the goods or render the service on time and as per the agreement.

In such cases as per the agreement between the supplier and the customer, when the customer give advance amount to the supplier at the same time the supplier required to submit the Advance payment bank guarantee  to the customer  carrying the same amount of advance paid.

In this case , if supplier did any breach of contract, then the customer can submit this  Bank Guarantee to the bank and can claim for the amount mentioned in the bank guarantee.

Normally the customer  will return this advance payment bank guarantee to the supplier , when the supplier delivered the goods or render the services equal to the advance amount received.