Bank Guarantees

Whenever a customer is going to make a purchase it is imperative that some sort of bank guarantee or customer bank guarantee is in place. This will ensure that the seller will be paid when preparing shipments for the next month without having gotten paid for it. This is the reason that it is so important for a bank guarantee to be issued or an SBLC, or a stand-by letter of credit. Many sellers require 2 or 3 months worth of guarantee to begin shipping the product but we try as hard as possible to keep that number at 1 so the buyers are not left having to pay massive initiation payments.


Bid Bond (Tender Bond)


Area of application
Primarily in export business, with project tenders.

Purpose
To secure any claims by the party inviting the tender on the tenderer in the event of withdrawal of the bid before its expiry date or if the bid is modified unilaterally – or if the tenderer, upon being awarded the contract, refuses to sign the contract or provide further guarantees on request.

Guarantee amount
In general 2% to 5% of the value of the contract.

Term
Usually short term.


Advance Payment Guarantee


Area of application
In import-export business, but also in domestic commercial business, trade and industry.

Purpose
To secure any claims by the buyer on the seller for reimbursement of the buyer’s advance payment on the contract price before delivery of the goods (or advance payment of the full contract price) – in the event that the seller has failed to meet his or her contractual delivery obligations in full.

Guarantee amount
The amount of the instalment or advance payment.

Term
Up to delivery of the goods plus e.g. 15 days.


Performance Bond


Area of application
In import-export business, but also in domestic commercial business, trade and industry.

Purpose
To secure any claims by the buyer on the seller arising from default in delivery or performance of the terms of the contract (e.g. construction, assembly, execution).

Guarantee amount
Frequently 5% to 20% of the value of the contract.

Term
Until the contract has been fulfilled.


Guarantee for Warranty Obligations


Area of application
In import-export business, but also in domestic commercial business, trade and industry, where it is more often a surety.

Purpose
To secure any claims by the buyer on the seller due to possible defects appearing after delivery.

Guarantee amount
Frequently 5% to 20% of the value of the contract.

Term
Depends on business sector. Frequently: 1 year after delivery or commissioning.


Payment Guarantee


Area of application
In import-export business, the payment guarantee is often used instead of a documentary credit.

Purpose
To secure any claims by the seller on the buyer for payment of the contract price by the agreed date.

Guarantee amount
Contract price or part thereof.

Term
Payment date plus e.g. 15 days.

This is the BANK GUARANTEE that we are talking about when we require a Bank Guarantee from our buyers as guarantee that the buyer will in fact make the purchases.



Guarantee Securing a Credit line


Area of application
Worldwide.

Purpose
To secure any claims by the lender on the borrower due to a credit (loan, etc.) not being repaid in accordance with the terms of the contract.

Guarantee amount
Amount of the credit. Usually includes a margin to cover accrued interest and incidental expenses.

Term
Expiry of loan plus e.g. 15 days.


Letter of Indemnity for Missing Bill of Lading


Area of application
Specifically for importers when the bill of lading is missing.

Purpose
To secure any claims by the shipping line/shipping company on:

the buyer resulting from the goods arriving from overseas being released without the original bill of lading being presented (e.g. due to postal delays or even loss).
the supplier due to issuance of a replacement bill of lading (original misplaced or lost).
Guarantee amount
1 to 2 years; in practice, however, often unlimited or until the original bill of lading or release document from the beneficiary is presented.

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