About letter of guarantee
Important
This content is archived and is not being updated. For the latest documentation, see Microsoft Dynamics 365 product documentation. For the latest release plans, see Dynamics 365 and Microsoft Power Platform release plans.
Applies To: Microsoft Dynamics AX 2012 R3, Microsoft Dynamics AX 2012 R2, Microsoft Dynamics AX 2012 Feature Pack, Microsoft Dynamics AX 2012
A letter of guarantee is an agreement by a bank (the guarantor) to pay a set amount of money to another person (the beneficiary) if the bank’s customer (the principal) defaults on a payment or an obligation to the beneficiary. Letters of guarantee are not transferable, and apply only to the beneficiary named in the guarantee agreement. The principal can request an increase or decrease in the value of a letter of guarantee, subject to the terms of the agreement.
To liquidate a letter of guarantee, the beneficiary must submit the original letter of guarantee and inform the bank of the principal’s default prior to the expiration date. The bank then pays the amount due to the account of the beneficiary, as agreed in the letter of guarantee. The bank reserves a percentage of the payment as margin. The percentage is agreed upon and specified in the terms of the agreement.
You can create a code to track the purpose of a letter of guarantee and stipulate the reasons that can be associated with a letter of guarantee when the letter is canceled. You can view the purpose codes and bank reasons in the Payment purpose codes and Bank reasons forms.
You can use the Letter of guarantee form to:
Create correct ledger entries and eliminate manual entry.
Record all monetary and nonmonetary transactions and track letter of guarantee balances.
Record and track the letter of guarantee status and expiration.
Generate a report that lists the banks that are holding letters of guarantee.
You can take the following actions on a letter of guarantee.
Action |
Purpose |
|---|---|
Submit to bank |
Submit the letter of guarantee request to the bank. |
Receive from bank |
After the bank agrees to the submitted request, collect the letter of guarantee from the bank. |
Give to beneficiary |
After you receive the letter of guarantee from the bank, provide the letter of guarantee to the beneficiary. |
Increase value |
If the beneficiary and the principal agree, increase the monetary value. |
Decrease value |
If the beneficiary and the principal agree, decrease the monetary value. |
Extend |
After you provide the letter of guarantee to the beneficiary, extend the period of validity if required. |
Cancel |
When the purpose for which the letter of guarantee was requested no longer applies, cancel the agreement. |
Liquidate |
When the beneficiary presents the letter of guarantee to the bank, cash out the letter of guarantee. |