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According to guarantee obligation, as bank-guarantor submits written request about payment of beneficiary amount to beneficiary in accordance with guarantee conditions under appeal of his client (principal) he gives written obligation for payment of the same amount.

Types of guarantee:

  • Bid bond
  • Performance bond
  • Advance payment guarantee
  • Payment guarantee
  • Reserve letter of credit and other

The purpose of guarantee is to ensure fulfillment of the obligations of any party (vendor or buyer) under bidding or contract. Relevant type of guarantee is used depending on guarantee’s destination.

Guarantees are widely applied in local and foreign commercial activity, industry and construction sectors. 

AIB (Azerbaijan Industry Bank) offers you minimization of the risks derived from international trade via banking documentary letters of credit. Documentary letter of credit is not only fast payment method but also is used as loan tool (for short term financing).

Relations among participants in documentary letters of credit are based on documents required  in letter of credit but not goods/service or contract, although these documents belong to the same contract (UCP 600, item 5).

Instructions for opening of documentary letter of credit should be submitted to the bank completely and accurately.

Submission of documents to the bank in accordance with conditions of letter of credit allows exporter obtain payment without obstacle.


Protection level of exporters’ interests varies depending on form of letter of credit:

  • Confirmed letter of credit
  • Unconfirmed letter of credit

Confirmed letter of credit if documents according to conditions of letter of credit opened on behalf of buyer are submitted correctly, bank-issuer (buyer’s bank) undertakes irrevocable payment obligation before seller. Letter of credit which is not approved is more efficient than approved letter of credit in term of cost.

Unconfirmed letter of credit  along with bank-issuer confirming bank is obliged for payment of amount in accordance with conditions of letter of credit before exporter. This commitment is independent from obligation of bank-issuer. Thus, both of confirming bank and bank-issuer have seperate obligations.

This type of letter of credit offers optimum safety of payment to exporter because it confines payment risk to the mmaximum extent and at the same time eliminates country risk of bank-issuer. Therefore approved letter of credit is more expensive than not approved type of letter of credit, because confirming bank obtain additional fee for undertaken risk through providing executon of bank payment. 

Documentary collection operation for exporter is safer than actual payment method of the goods but is not insured as documentary letter of credit. For instance, unlike letter of credit it doesn’t gives guarantee for payment and meet loan and political risks. Therefore, you should verify whether documentary collection is right payment method for yourselves before taking the sales negotations in the exporter role. Only for these reasons, documentary collection operations require cheaper cost, less time and effort than other documentary operations.

So, exporter faces with certain risks, produces goods before getting payment, loads the goods or renders other services. Therefore, documentary collection is recommended in existence of the following conditions:

  • Very reliable relations should exist between exporter and importer;
  • No any doubt about opportunity and dream for performance of payment by importer on exporter;
  • Importer country should be stable from political, economical and legal point of view;
  • No any restrictions, difficulties and delays should be in currency regime on international transfer operations in importer country
Documentary operations