A letter of guarantee acts like a letter of credit with one important distinction -- the letter of guarantee pays either party if the other does not fulfill the transaction's requirements. For example, if you pay your supplier for a shipment before delivery and do not receive your product, and you asked the supplier for a letter of guarantee before sending payment, the bank must reimburse you for the undelivered product. The letter of guarantee entitles you to reimbursement without having to go to court if the shipper is unable to produce proof of delivery.