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BANK GUARANTEE MANAGEMENT MODULE

Purpose of this Module
The purpose of the Bank Guarantee Management Module is to manage the complete lifecycle of bank guarantees, starting from the internal BG request and approval through bank issuance, delivery, extension, amendment, reduction, release, settlement and closure.

The module will also manage:

Bank guarantee limits
Facility utilization
Cash margins
Bank commission and charges
Expiry alerts
Supporting documents
Approval workflows
Accounting integrations
Claims and invocation
Audit trails

Management reports
The system must maintain one centralized BG record and generate all bank-wise, customer-wise, project-wise and guarantee-type-wise reports from the centralized database.

User Roles

The requester may belong to Sales, Commercial, Projects, Procurement, Operations or another department.

Permissions:

Create BG request
Save request as draft
Submit request
View own department requests
Attach supporting documents
Respond to returned requests

Request extension, amendment or release

Department Head

Permissions:

Review departmental BG requests
Approve, reject or return requests
View department exposure

View department pending actions

Finance Officer

Activities:

Validate bank facilities
Select bank and facility
Submit application to bank
Record bank queries
Record issued BG
Manage extensions and amendments
Initiate release and cancellation
Record margin release
Reconcile bank facility
Review financial impact
Validate cash-margin availability
Create accounting vouchers
Post commission and charges
Reconcile restricted cash
Confirm settlement
Approve BG requests based on approval limits
Approve amendments, extensions and claims
View complete BG dashboards

Override restricted actions with reason

1. Overall Process Flow

Requester Creates BG Request in system
        ↓
Department Head Approval in system
        ↓
Finance Reviews Request in system
        ↓
System Checks Available Bank-Wise BG Limits in system
        ↓
Finance Selects Bank and BG Facility in system
        ↓
CFO / Authorized Person Approval
        ↓
Finance Contacts Bank
        ↓
Application Submitted to Bank
        ↓
Bank Reviews and Issues BG
        ↓
Finance Records Issued BG in ERP system
        ↓
Bank Facility Utilization Updated in system
        ↓
BG Delivered to Customer
        ↓
BG Monitored Until Expiry in system
        ↓
Extension / Reduction / Cancellation in system
        ↓
Bank Confirms Release
        ↓
BG Limit Restored in system
        ↓
BG Closed in system

Step 1 — Requester Creates BG Request

The requester creates a BG request in the ERP.

Mandatory Request Fields

Request date
Requester name through system
Requesting department
Customer/beneficiary/Client
Project and Cost Center
Contract, PO or tender reference
BG type
BG amount
Currency
Required issue date
Effective date
Expiry date
Number of days required BG -Due in days
Claim expiry date, where applicable
Purpose of BG
Responsible person
BG wording type
Required supporting documents
Priority
Requester declaration

Request Status

After submission:
```
Submitted for Department Approval
```
At this stage, no bank limit should be utilized.

The requested amount may be shown separately as a Pending BG Request Amount, but it should not reduce the actual available bank limit.

Step 2 — Department Head Approval

The Department Head reviews:

Business requirement
Customer requirement
Project or contract reference
BG amount
BG validity
Supporting documents
Responsible person
Requirement for extension or auto-renewal

The Department Head can:

Approve
Reject
Return for correction

Status After Approval

Approved by Department

Next status:

Pending Finance Review

Finance Reviews the BG Request

Finance verifies:

BG amount
BG type
Contract or tender requirement
Required validity
Customer wording
Available BG facilities
Bank-wise available limit
Cash-margin requirement
Bank charges
Facility expiry date
Currency
Finance budget availability

The system should display the available BG facilities to Finance.

Example Facility Selection Screen

Bank	Facility Limit	Utilized	Reserved	Available	Facility Expiry
HBL	500,000,000	320,000,000	30,000,000	150,000,000	31-Dec-2026
MCB	300,000,000	210,000,000	10,000,000	80,000,000	30-Jun-2027
UBL	200,000,000	100,000,000	20,000,000	80,000,000	31-Mar-2027

Finance selects:

Bank
Facility
Margin percentage
Estimated margin amount
Commission rate
Estimated charges
Expected issue date
System Limit Validation

When Finance selects a bank facility, the ERP must validate:
```
Requested BG Amount <= Available Facility Limit
```
If the Limit Is Available

The system allows Finance to continue.

Status:
```
Finance Reviewed
```
If the Limit Is Not Available

The system should block submission and show:
```
Requested BG Amount exceeds the available BG limit of the selected facility.
```
Finance may then:
- Select another bank
- Select another facility
- Divide the BG between facilities, only where legally and contractually allowed
- Request an enhancement in the bank facility
- Obtain exceptional approval
- Wait for an existing BG to be released

This need to be discuss with finance department weather it is in the request document or bank payment voucher.

BG Limit Definitions

The system should maintain three separate amounts for each bank facility in COA sub-ledgers.

Approved Facility Limit

This is the total BG line approved by the bank.

Example:

HBL Approved BG Limit = PKR 500,000,000

Utilized Limit---- This is optional

This is the total value of BGs already issued and not officially released by the bank.

Utilized Limit =
Total Issued BGs
+ Amount Increases
- Confirmed Reductions
- Confirmed Cancellations

Reserved Limit

This is the amount temporarily reserved for internally approved requests that have not yet been issued by the bank.

Reserved Limit =
Approved BG Requests
Submitted to Bank
but not yet Issued

Available Limit

Available Limit =
Approved Facility Limit
- Utilized Limit
- Reserved Limit

Example

Approved Limit = PKR 500,000,000
Utilized Limit = PKR 320,000,000
Reserved Limit = PKR 30,000,000

Available Limit =
500,000,000 - 320,000,000 - 30,000,000

Available Limit = PKR 150,000,000

Internal Approval

After Finance selects the bank and facility, the request goes for approval.

Recommended workflow:

Finance Manager
      ↓
CFO
      ↓
CEO / Authorized Signatory

Approval levels may depend on BG amount.

After final approval:

Approved for Bank Submission

At this stage, the system should reserve the BG amount against the selected facility.

Reserve the BG Limit

When the request is finally approved, the system creates a reservation transaction.

Facility Transaction

Transaction Type: BG Limit Reserved
Amount: Requested BG Amount
Reference: BG Request Number

The reservation reduces the available limit but does not increase the utilized limit.

Example

Before reservation:

Approved Limit: PKR 500 million
Utilized: PKR 320 million
Reserved: PKR 30 million
Available: PKR 150 million

New approved BG request:

Requested Amount: PKR 50 million

After reservation:

Approved Limit: PKR 500 million
Utilized: PKR 320 million
Reserved: PKR 80 million
Available: PKR 100 million

Convert Reserved Limit into Utilized Limit

Upon issuance, the ERP creates two facility transactions.

Transaction 1 — Release Reservation

Transaction Type: BG Reservation Released
Amount: Issued BG Amount

Transaction 2 — Utilize Facility

Transaction Type: New BG Issued
Amount: Issued BG Amount

The reserved limit decreases, while the utilized limit increases.

Example

Before issuance:

Approved Limit: PKR 500 million
Utilized: PKR 320 million
Reserved: PKR 80 million
Available: PKR 100 million

BG issued:

Issued Amount: PKR 50 million

After issuance:

Approved Limit: PKR 500 million
Utilized: PKR 370 million
Reserved: PKR 30 million
Available: PKR 100 million

The available amount remains unchanged because the amount was already reserved.

Bank Rejection Flow

If the bank rejects the application:

Submitted to Bank
        ↓
Rejected by Bank
        ↓
Reservation Released
        ↓
Returned to Finance

The system should release the reserved limit.

Facility Transaction

Transaction Type: BG Reservation Released
Reason: Bank Rejected Application

The request may then be:

Submitted to another bank
Corrected and resubmitted
Cancelled

BG Monitoring Flow

The system continuously monitors:

Current BG amount
Current expiry date
Claim expiry date
Days remaining
Responsible person
Extension requirement
Release requirement
Margin status
Facility utilization

Expiry Alerts

Alerts should be sent:

90 days before expiry
60 days before expiry
30 days before expiry
15 days before expiry
7 days before expiry
On expiry date
Daily after expiry until release action begins
Extension Flow

When an extension is required:
```
Extension Request
        ↓
Department Approval
        ↓
Finance Review
        ↓
CFO Approval
        ↓
Submitted to Bank
        ↓
Bank Extends BG
        ↓
Expiry Date Updated
```
If the BG amount remains unchanged, the facility utilization remains unchanged.

If the BG amount increases:
```
Additional Utilization =
New BG Amount - Previous BG Amount
```
The system should check available limit before approving the increase.

Reduction Flow

When the bank confirms a reduction:
```
Current BG Amount
        ↓
Reduction Request
        ↓
Approval
        ↓
Bank Confirmation
        ↓
Current BG Amount Reduced
        ↓
Facility Limit Released
```
Example
```
Current BG Amount: PKR 50 million
Reduction: PKR 20 million
Revised BG Amount: PKR 30 million
```
Facility utilization reduces by PKR 20 million.

The limit must not be released before receiving bank confirmation.

Expiry and Release Flow

A BG must not automatically release the bank limit when it expires.

Correct flow:
```
BG Expired in system
      ↓
Release Documents Requested
      ↓
Customer Release Letter / Original BG Received in system
      ↓
Submitted to Bank
      ↓
Bank Confirms Cancellation
      ↓
Facility Limit Released
      ↓
Margin Release
      ↓
Finance Reconciliation in system
      ↓
BG Closed in system
```
An expired BG should remain in the utilized limit until the bank confirms its release.

Overall Company BG Limit Dashboard

The system should consolidate all bank facilities.

Overall Calculations
```
Overall Approved Limit =
Sum of Approved Limits of All Active Facilities
```
```
Overall Utilized Limit =
Sum of Utilized Limits of All Active Facilities
```
```
Overall Reserved Limit =
Sum of Reserved Limits of All Active Facilities
```
```
Overall Available Limit =
Overall Approved Limit
- Overall Utilized Limit
- Overall Reserved Limit
```
Example

Description Amount

Total Approved BG Lines PKR 1,000 million

Total Utilized PKR 680 million

Total Reserved PKR 60 million

Total Available PKR 260 million

Overall Utilization 74%

Dashboard KPI Cards

The main BG dashboard should contain:
- Total bank-wise BG line limits
- Overall approved BG limit
- Overall utilized BG limit
- Overall reserved BG limit
- Overall available BG limit
- Active BG amount
- Number of active BGs
- BGs pending approval
- BGs submitted to banks
- BGs pending issuance
- BGs expiring within 30 days
- Expired but unreleased BGs
- Margin blocked
- Margin release pending
- Bank facilities expiring soon
Important Business Rules
1. A request should not immediately utilize the bank limit.
2. The limit should be reserved after final internal approval.
3. A reserved amount should reduce the available limit.
4. Upon BG issuance, reservation should be converted into actual utilization.
5. If a bank rejects or the request is cancelled, the reservation must be released.
6. An expired BG should remain in utilization until officially cancelled by the bank.
7. Reduction should release the limit only after bank confirmation.
8. Extension without an amount change should not affect facility utilization.
9. An increase during extension or amendment should require another available-limit check.
10. Every facility movement must have a transaction-ledger entry.
11. Manual facility adjustments must require CFO approval and mandatory remarks.
12. Total bank-wise and overall limits must be calculated from facility transactions, not manually entered in reports.
13. Closed or cancelled facilities should not be available for new BG requests.
14. A facility expiring before the requested BG expiry date should not be selected unless renewed or exceptionally approved.
15. The system should block any transaction that causes negative available limits.

Description	Amount
Total Approved BG Lines	PKR 1,000 million
Total Utilized	PKR 680 million
Total Reserved	PKR 60 million
Total Available	PKR 260 million
Overall Utilization	74%

Search Knowledge Base Articles

BANK GUARANTEE MANAGEMENT MODULE

1. Overall Process Flow

Step 1 — Requester Creates BG Request

Mandatory Request Fields

Request Status

Step 2 — Department Head Approval

Status After Approval

Finance Reviews the BG Request

Example Facility Selection Screen

System Limit Validation

If the Limit Is Available

If the Limit Is Not Available

BG Limit Definitions

Approved Facility Limit

Utilized Limit---- This is optional

Reserved Limit

Available Limit

Example

Internal Approval

Reserve the BG Limit

Facility Transaction

Example

Convert Reserved Limit into Utilized Limit

Transaction 1 — Release Reservation

Transaction 2 — Utilize Facility

Example

Bank Rejection Flow

Facility Transaction

BG Monitoring Flow

Expiry Alerts

Extension Flow

Reduction Flow

Example

Expiry and Release Flow

Overall Company BG Limit Dashboard

Overall Calculations

Example

Dashboard KPI Cards

Important Business Rules

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