Bank Guarantee in ERPNext
A Bank Guarantee is a financial assurance issued by a bank that guarantees a debtor’s obligations will be fulfilled. If the debtor fails to meet their obligations, the bank covers the liability up to the guaranteed amount.
It is commonly used in large business contracts to reduce financial risk between parties.
Bank Guarantees help secure business transactions by ensuring payment security and reducing counterparty risk in commercial agreements.
Access Path
Home > Accounting > Banking and Payments > Bank Guarantee
1. Purpose of Bank Guarantee
A Bank Guarantee allows businesses to:
- Secure large-scale transactions
- Assure payment to suppliers or service providers
- Enable customers to purchase goods or services on credit
- Reduce financial risk between contracting parties
2. How to Create a Bank Guarantee
- Go to Bank Guarantee list and click New.
- Select type: Receiving (Customer) or Providing (Supplier).
- Set Start Date and Validity period (in days).
- Select linked Sales Order or Purchase Order.
- ERPNext will auto-fetch Customer/Supplier and Amount.
- Select Bank and Bank Account.
- Enter Bank Guarantee number and beneficiary name.
- Save and Submit.
3. Key Features
ERPNext allows tracking and managing guarantees efficiently:
- Link to Sales Orders and Purchase Orders
- Automatic amount and party fetching
- Validity tracking with expiry dates
- Email reminders before expiry
- Status monitoring of active guarantees
4. Additional Options
- Margin Money: Amount deposited with bank as security
- Charges Incurred: Bank service charges for issuing guarantee
- Fixed Deposit Number: Linked FD used as collateral
5. Business Use Case
Bank Guarantees are typically used when:
- A large supplier requires assurance from a smaller customer
- A customer needs credit support to complete a purchase
- High-value contracts require financial security
This ensures the supplier receives payment even if the customer defaults.
6. Benefits
- Reduces financial risk in contracts
- Builds trust between business parties
- Enables larger business deals
- Improves creditworthiness of buyers
