Combining guarantees and letter of credit in financial business – experiences in Serbia

Abstract

In the present time, when the illiquidity of the economy is increasing and the problem of debt collection is increasing, it is very important to secure and reduce the risk of collection to the lowest possible level. Bank guarantees constitute the bloodstream of international trade. Without a bank guarantee, which has advantages over other collateral, it is almost impossible to imagine concluding any high value contract. The challenges of modern times prove that a bank guarantee is an irreplaceable security instrument in international commodity and payment transactions because it provides creditors with a sufficiently effective and safe means in the event that the debtor fails to fulfill his contractual obligations for any reason. Proper combining of bank guarantees and letter of credit provides protection against risks, a better negotiating position in dealing with transactions, as well as securing the company's own claims. This work attempts to introduce the basic characteristics of bank guarantees in the banks of Serbia. The objective of the research, is to point out that bank guarantees have a small advantage relative to letter of credit and the other security instruments of receivables in Serbia