Our team at International Trade Finance LLC has many clients in Ghana. Our client is a medium sized trader of high tensile deformed bars. High tensile deformed bars are also known as high yield deformed bars, it has ribs, deformations or lugs on its surface and its carbon content is relatively high, preventing it from bending or changing its shape as easily as other similar metals.
Those bars are usually used for construction purposes, since they increase the bond between two materials, acting as a reinforcement. In addition, the bars help reduce slipping in concrete and they also limit cracks in the reinforced concrete.
Breaking the above into numbers, the high tensile deformed bars’ increase in strength allows contractors to use between a third to a half the thickness and weight of the steel, compared to other metals. In addition, those bars are between 40 to 80 percent stronger compared to plain bars of the same size.
Our client had been in business relationship with a Ghanaian manufacturer in the steel industry for quite some time, approaching to buy several dozen tons of high yield deformed bars. Since our client and the supplier had good relations and our client had a good payment record, they agreed to settle transactions on an open account basis. But for the past year prior to this transaction our client started suffering from cash-flow problems, and was often late in payment.
Since the deal was already concluded and the steel bars were delivered, an issuance of a documentary letter of credit was not an option instrument to ease the fear of the supplier from non-payment. Consulting with our client, we asked him to offer the supplier an issuance a bank guarantee.
A bank guarantee seemed to be the best option for both sides, since it would allow our client to keep their business ongoing while the supplier would now be more secured. In case the buyer (our client) would not pay the seller an agreed upon amount in an agreed upon period of time, the bank will pay the seller the funds.
With the issuance of a bank guarantee our client was able to continue with his business, and by the time the guarantee expired he was able to pay the supplier for the purchase of the steel bars.