Legal & Regulatory Aspects of Banking - Deferred Payment Guarantee Unit - 13 : Deferred Payment Guarantee Deferred Payment Guarantee is a guarantee that indicates that deferred ( postponed ) payments . In short it is called as " DFG".
Purpose of deferred Payment Guarantee : When import or export of raw material or consumer goods is made ,the payments is done either immediately or within 360 days . This is called Short Term. In Deferred payment guarantee,a third party , mostly bank or Financial Institution, guarantee the payment of the installments . This guarantee ensures timely payment to the seller/ Exporter , failing which , the guarantee can be invoked and payment received.
Method of Payment : 1. Advance payment of 10% -15% of the price of goods made by buyer . 2. Another 10-15% on receipt of documents under LC 3. The Balance amount is paid in installments spread over a period of 1 -7 years, which is secured by a " Defered Payment Guarantee"