What is basic difference between Letter of Credit and Letter of Guarantee?

Letter of credit basically assures the payment to the supplier if goods or services are supplied as of condition & terms. Though bank guarantee is almost line LC it ensures the loss to the beneficiary occurred from any negligence of service or goods receiver.

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Letters of credit ensure that a transaction proceeds as planned, while bank guarantees reduce the loss if the transaction doesn't go as planned. A letter of credit is an obligation taken on by a bank to make a payment once certain criteria are met.

A bank guarantee and a letter of credit are similar in many ways but they're two different things. Letters of credit ensure that a transaction proceeds as planned, while bank guarantees reduce the loss if the transaction doesn't go as planned.

Selling a product to a customer is often a leap of faith. Short of requesting cash on delivery or prepayment, you are trusting that your customer will pay as promised. Requesting a letter of credit from your customer requires that he go to a bank and receive a letter stating that the bank will pay after you provide the letter and proof of delivery. A letter of credit eliminates any financial risk to the seller because the payment comes from the third-party bank not the purchaser.

A letter of guarantee acts like a letter of credit with one important distinction -- the letter of guarantee pays either party if the other does not fulfill the transaction's requirements. For example, if you pay your supplier for a shipment before delivery and do not receive your product, and you asked the supplier for a letter of guarantee before sending payment, the bank must reimburse you for the undelivered product. The letter of guarantee entitles you to reimbursement without having to go to court if the shipper is unable to produce proof of delivery.

A bank guarantee and a letter of credit are similar in many ways but they're two different things. Letters of credit ensure that a transaction proceeds as planned, while bank guarantees reduce the loss if the transaction doesn't go as planned.

A letter of credit is an obligation taken on by a bank to make a payment once certain criteria are met. Once these terms are completed and confirmed, the bank will transfer the funds. This ensures the payment will be made as long as the services are performed.

A bank guarantee, like a line of credit, guarantees a sum of money to a beneficiary. Unlike a line of credit, the sum is only paid if the opposing party does not fulfill the stipulated obligations under the contract. This can be used to essentially insure a buyer or seller from loss or damage due to nonperformance by the other party in a contract.