A letter of guarantee (LOG), also known as a prepayment bond, is a legal document issued by a bank or financial institution on behalf of a customer to guarantee payment of a specific amount to a designated recipient. This article provides a sample template of a LOG for reference.
The following information should be included in the LOG:
The guarantee clause is the core part of the LOG. It should clearly state that the issuing bank guarantees payment to the beneficiary in case of default by the customer. The clause should cover all relevant details, including the guarantee amount, purpose, and validity period.
In this section, specify the steps and requirements for the beneficiary to make a claim against the LOG. Include the necessary documents and procedures, such as a written notice of default, evidence of default, and a request for payment. Make sure to outline any time limits for the beneficiary to initiate the claim.
This clause stipulates the conditions under which the LOG can be terminated before the expiry date. It may include events such as full payment of the guaranteed amount by the customer, mutual agreement between the parties involved, or any other relevant circumstances that would nullify the guarantee.
In this section, specify the procedures and requirements for making amendments to the LOG. Additionally, state the applicable jurisdiction and governing law in case of any disputes related to the LOG.
A well-drafted LOG is crucial for both customers and beneficiaries involved in financial transactions requiring prepayment or advance payment. By having a clear and comprehensive template like the one provided above at their disposal, parties can ensure smooth and secure business operations.
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