Typesof Guarantees in export financing method What is Bank guarantee? • A financial institution warranty is a financial backstop given by means of a economic organization promising to cowl a economic dedication if one birthday celebration in a transaction comes up brief to preserve up their phase of a contract. Generally utilized in a outdoor country, a financial institution assurance allows the bank's patron to gather merchandise and goods, buy equipment, or operate global trade. If the patron comes up brief to settle a responsibility or supply promised products, the financial institution will cowl it. 1 - Investopedia. (n.d.). What is a bank guarantee? How they work, types, and example. 2 - Nordea. (n.d.). Bank guarantees in international trade. Performance Guarantee A Performance Guarantee is a contractors promise to entire the venture undertaken. To in addition elaborate, a Performance Guarantee is a record that legally confirms that you, the contractor will whole the contract you have undertaken. 3 - Export-Import Bank of the United States (EXIM). (2023, September 26). Surety Bonds for Exporters: What is a Performance Bond? Performance guarantee A Performance Guarantee is a file issued by means of an insurance plan organization or a financial institution to an employer, on behalf of the contractor. This document guarantees that the contractor will execute the works as per the contract. This guarantee gives the employer confidence that the project will be completed within the specified time frame. In case the contractor fails to supply the project as per the contract, the employer will acquire compensation for any monetary losses up to the amount of the overall performance bond. 4- Open to Export. (n.d.). A guide to bonds and guarantees. Advance payment guarantee An advance payment guarantee or bond is a contract between two parties, the place the provider undertakes to be accountable for the achievement of a contractual responsibility owed with the aid of one individual to any other in case of a default. The issuer's responsibility may additionally both be primary, such as in an on-demand duty or indemnity, or secondary, such as in a guarantee. This kind of bond is typically used to help or warranty the overall performance of a business contract, like a contract for the sale of items or a building contract. 5 - Danske Bank Corporate & Institutional Banking (CIB). (n.d.). Advance Payment Guarantees. Advance payment guarantee For example, Sometimes, a customer or organization can also make boost repayments to a vendor or contractor to assist them buy the crucial substances or equipment to function the contract. In such cases, the consumer or organisation would prefer to make positive that if the vendor or contractor fails to supply the items or operate the services, they can at least get better the repayments made to the vendor or contractor. To make certain this, the patron or organization will require the supplier or contractor to furnish an increase rate assurance or bond for these payments. This guarantee or bond will promise that if the seller or contractor fails to fulfill their contractualobligations, the business enterprise will refund the improve repayments made bythe consumer or corporation 6- International Trade Finance. (n.d.). Guarantees. Bid bonds A bid bond is a sort of surety bond that gives a assurance to the undertaking proprietor that the bidder will complete the work if selected. It serves as a shape of insurance plan design for the proprietor in case the bidder fails to begin the project. Bid bonds are usually used in improvement jobs or distinct duties that require a bid-based preference process. The essential characteristic of a bid bond is to warranty the proprietor that the bidder has the financial ability to acquire the job for the price quoted in the bid. It offers the challenge proprietor self assurance that the bidder is dependable and succesful of pleasurable the contractual obligations. 7 - Export Development Canada. (n.d.). A guide to bonds and guarantees. Bid bond KEY POINTS • A bid bond is a criminal settlement that ensures contractors fulfill their referred to responsibilities on a project. • This shape of assurance gives each economic and felony recourse to the proprietor of the project. • Bid bonds are commonly submitted in conjunction with the project's contract. • Bid bonds are backed through specialised surety organizations that warranty the repayments will be made if the contractor fails to uphold their stop of the bargain. • The different principal kinds of development bonds are overall performance and fee bonds. 8- U.S. Export Import Bank. (2023, September 27). Issue performance and bid bonds. Financial Guarantee A financial guarantee is a formal agreement that assures the repayment of a debt by another party in case the borrower fails to keep up with the payments. The third party, in this case, acts as a guarantor and takes responsibility for the debt. There are two types of financial guarantees: corporate financial guarantees and personal financial guarantees. A corporate financial guarantee is a bond supported by an insurer or other secure financial institution. This guarantee ensures that investors receive their principal and interest payments. On the other hand, lenders may ask certain borrowers to provide financial guarantees before they can access credit. For instance, university college students may additionally want to get a assurance from their dad and mom or some other celebration to get pupil loans. 11 - Finnvera. (n.d.). Finance Guarantee. 12 - Exportkreditgarantien.de. (n.d.). Financing options | Federal Export Credit Guarantees. Financial Guarantee Example of a Financial Guarantee Here's a hypothetical occasion to show off how financial ensures work. Let's expect that XYZ Company has a subsidiary named ABC Company. ABC Company needs to construct a new manufacturing facility and desires to borrow $20 million to proceed. If banks figure out that commercial enterprise corporation ABC has potential financial savings deficiencies, they would possibly additionally ask XYZ Company to develop to be a guarantor for the loan. That means that if ABC defaults, XYZ Company must repay the loan the use of cash from extraordinary traces of business. 11 - Finnvera. (n.d.). Finance Guarantee. 12 - Exportkreditgarantien.de. (n.d.). Financing options | Federal Export Credit Guarantees. Shipping Guarantee A transport warranty is a supportive provider for importers who get merchandise arriving at the port before the authentic documents. In some cases, the vessel carrying the merchandise arrives before the transport documents, and the importer has to wait for the files to clear customs duties and different formalities. With the shipping guarantee, the importer can obtain the products without delay, even if the shipping documents are not yet available. 13 - Bank of China. (2008, June 27). Shipping Guarantee. Shipping Guarantee Benefits of a Shipping Guarantee? • It is important to minimize demurrage costs • prevent delays, and seize business opportunities • as well as enhance cash flow. In order to issue a shipping guarantee, either the importer's bank or the issuing bank for the letter of credit may do so. This guarantee is most suitable for short shipping voyages when the goods arrive before the documents. 14- Drip Capital. (n.d.). Shipping Guarantee in Import Export - Meaning, Process & Examples. Credit Security Guarantee A credit guarantee is a promise made by a guarantor to take on the debt obligation of a borrower in case the borrower defaults. To put it simply, a credit guarantee provides a safety net that increases the likelihood of loan approval and improves loan terms. It reduces the risk that lenders face, which benefits both businesses and individuals. 15- Food and Agriculture Organization of the United Nations. (2001). CREDIT GUARANTEES Credit Security Guarantee "How It Works: A guarantor is a third party who agrees to take financial responsibility if the original borrower fails to meet their payment obligations or becomes insolvent. In case the borrower defaults (i.e., fails to repay the debt), the guarantor steps in to cover the outstanding amount. For the agreement to be effective, all three parties - the lender, borrower, and guarantor - must sign it." 16- Department of Enterprise, Trade and Employment (2017). Credit Guarantee Scheme. Credit Security Guarantee Forms of Guarantees: There are different types of guarantees, such as financial contracts or security deposits, which a guarantor may assume if the debtor defaults. Financial contracts are common guarantees where the guarantor takes on financial responsibility in case the debtor fails to fulfill their obligations. On the other hand, security deposits or collateral can also serve as guarantees. For instance, secured credit cards require borrowers to provide a cash deposit that is equal to the credit line. In case of a default by the borrower, the deposit can be liquidated. It's important to keep in mind that a financial guarantee may not cover the entire liability, and may only guarantee interest or principal repayment, but not both. Retention Money Guarantee Retention cash refers to the quantity of cash that an organization maintains apart as a precautionary measure for any faulty or non-conforming work through the contractor. This provision is put in area to protect the corporation towards defects that may additionally show up at some point of the defects legal responsibility length if the contractor fails to comply with the contract terms. The motive of retention cash is to grant safety to the employer. It emphasizes the significance of finishing the assignment as per the agreed-upon phrases and designs. The contractor is required to end the scope of work outlined in the contract to acquire the retention cash quantity that has been withheld. 17- Bank of China. (2023, August 8). Retention Money Guarantee. Bank of China Limited Macau Branch. Retention Money Guarantee How to deduct Retention Money from the progress claim? In building contracts, it is frequent to preserve a sure quantity of Retention Money in every development claim. Usually, this quantity is 10% of the work finished and up to 5% of the contract sum, however it can differ relying on the contract. To keep away from any confusion, refer to the contract record for the unique development assignment earlier than deducting any amount. Here's how to deduct retention cash from the development claim. The sum due to Interim Payment Certificate must be calculated at a fee of 90% for the fee of work performed and a fee of 80% for the true covered substances or items delivered on site. This proportion of the sum that is now not paid is recognized as the retention money for the contract. Retention Money Guarantee Important matters to be aware of : As a contractor in cost for a project, beneath are the errors and misconceptions to note. 1-Some contractors fail to declare their launch of retention cash on time. 1-Final Account stage is essential for any tasks as closing of the challenge includes many things to do associated to fee management. 3-Retention cash offers safety to the employer. Product warranties and retention cash are two awesome ideas and must no longer be burdened with every other. Warranty Execution Guarantees The term "Warranty Execution Guarantees" is less common than individual concepts like "warranty" and "execution guarantee." However, it can be understood by combining the two: Warranty: A guarantee by a seller or manufacturer that a product or service will meet certain standards of quality or performance. If it fails to do so, the warranty provides a remedy, such as repair, replacement, or refund. Execution Guarantee: In a legal context, this refers to a guarantee that a contract has been signed by someone with the proper authority to bind the party they represent. Combining these: Warranty Execution Guarantees can be seen as a way to ensure that the promises made in a warranty can actually be fulfilled. 18- International Trade Centre (ITC). (2020). Export finance: A practical guide for small and medium-sized 19-enterprises (SMEs). 10 - International Chamber of Commerce (ICC). (2019). Uniform Customs and Practice for Documentary Credits (UCP 600). Warranty Execution Guarantees Several aspects of Warranty Execution Guarantee: •Financial backing: The guarantor might be a separate entity (like an insurance company) that pledges to step in and cover the costs of warranty repairs or replacements if the seller goes out of business. •Performance bond: Similar to a financial backing, but specific to a particular project. The bond guarantees that the seller will complete the promised warranty work (e.g., repairs). •Authorization: This ensures the warranty is valid by guaranteeing the person signing the warranty has the authority to bind the company (relevant for execution guarantee meaning). Warranty Execution Guarantees In general essence, Warranty Execution Guarantees provide additional peace of mind to the buyer by going beyond the seller's own promise. It's important to note that these types of guarantees are not universally offered and may be more common in specific industries or for high-value products. Additional points : The specific terms of a Warranty Execution Guarantee will vary depending on the circumstances. It's important to carefully review the details in the fine print in order to fully comprehend what is covered and what is not. These guarantees may come at an additional cost. Consulting with a lawyer can be helpful, especially for complex contracts or high-value purchases. Payment Guarantee A deed guaranteeing the overall performance of a party's price duties below a industrial agreement. For drafting purposes, one celebration consents to assurance to the different birthday celebration the fee responsibilities of a third birthday party underneath a industrial agreement. 19- International Trade Administration. (n.d.). Methods of Payment . Trade.gov. 20 - Global Trade Funding. (n.d.). Bank Guarantees For Import Transactions. Payment Guaranty Example : A written document, called a contract, is issued by the Bank of China at the request of the buyer to the seller. This contract guarantees that the buyer will fulfill the payment obligations under the agreement when purchasing goods, technology, patents, or labor. The main function of this payment process is to provide protection for the contract payment. Payment Guarantee The Payment Guarantee feature offers several benefits, including: 1.It solves mutual mistrust issues between parties involved in a transaction. The Bank of China, with its reputable image, acts as a trusted guarantor to ensure a secure transaction by providing a guarantee to both parties involved. 2. It ensures the fulfillment of contractual obligations. 3.It ensures timely payment for goods, similar to a Letter of Credit (L/C) in merchandise trade, by guaranteeing the contract price payment. 4.It has a wide applicationscope, not limited to merchandise trade but also to construction projects. Foreign Bank Guarantee A foreign bank guarantee is a written commitment issued by a bank in one country (issuing bank) on behalf of its client (applicant) to a beneficiary in another country. It essentially acts as a financial assurance for the beneficiary that the applicant will fulfill their contractual obligations in the event of a default. 21- Investopedia. (n.d.). What Is a Bank Guarantee? How They Work, Types, and Example. 22- Mahanakorn Partners Group. (n.d.). Bank Guarantee Letter & International Guarantees. Mahanakorn Partners Group Foreign Bank Guarantee Additional points for foreign bank guarantee • Foreign bank guarantees are crucial for mitigating risks in international trade, where parties might not have a longstanding business relationship or operate under different legal systems. • The specific terms and conditions of a foreign bank guarantee will vary depending on the underlying contract and the issuing bank's policies. • In some cases, a correspondent bank in the beneficiary's country might be involved to facilitate the communication and ensure the guarantee's validity. Foreign Bank Guarantee Example: Foreign Bank Guarantee for Equipment Delivery Scenario: Imagine a US-based company, ABC Inc., orders a specialized machine from a German manufacturer, XYZ GmbH. The machine costs $1 million and requires a complex manufacturing process. To secure the deal, XYZ GmbH requests a foreign bank guarantee from ABC Inc.'s bank. How the Foreign Bank Guarantee Works: 1. Application: ABC Inc. approaches its bank (US Bank) and requests a foreign bank guarantee for $1 million in favor of XYZ GmbH. 2. Evaluation: US Bank evaluates ABC Inc.'s creditworthiness and may require collateral to secure the guarantee. Fees are also associated with issuing the guarantee. 3. Issuance: If approved, US Bank issues a bank guarantee document addressed to XYZ GmbH. This document outlines: • The amount guaranteed ($1 million). • The underlying contract (the purchase agreement between ABC Inc. and XYZ GmbH). • The conditions for payment (e.g., XYZ GmbH can claim the money if ABC Inc. fails to receive the machine or if the machine malfunctions within the warranty period as outlined in the contract). Foreign Bank Guarantee • Delivery: US Bank sends the original guarantee document to XYZ GmbH, likely through a correspondent bank in Germany for verification. • Contract Fulfillment: ABC Inc. receives the machine as agreed. They fulfill their payment obligations to XYZ GmbH. The foreign bank guarantee serves as security but doesn't come into play. • Guarantee Release: Once the contract is completed and all obligations are met, the guarantee becomes null and void. US Bank may issue a letter to XYZ GmbH confirming the release. Benefits: Security for XYZ GmbH: They have financial assurance from a reputable bank in case ABC Inc. defaults. Comfort for ABC Inc.: The guarantee demonstrates their commitment to the contract and helps secure the deal. References what is guarantee : - Investopedia. (n.d.). What is a bank guarantee? How they work, types, and example. - Nordea. (n.d.). Bank guarantees in international trade. Performance guarantee: - Export-Import Bank of the United States (EXIM). (2023, September 26). Surety Bonds for Exporters: What is a Performance Bond? - Open to Export. (n.d.). A guide to bonds and guarantees. Advance payment guarantee : - Danske Bank Corporate & Institutional Banking (CIB). (n.d.). Advance Payment Guarantees. - International Trade Finance. (n.d.). Guarantees. Bid bond: - Export Development Canada. (n.d.). A guide to bonds and guarantees. - U.S. Export Import Bank. (2023, September 27). Issue performance and bid bonds. warranty execution guarantee: - International Trade Centre (ITC). (2020). Export finance: A practical guide for small and medium-sized enterprises (SMEs). International Chamber of Commerce (ICC). (2019). Uniform Customs and Practice for Documentary Credits (UCP 600). Financial Guarantee: - Finnvera. (n.d.). Finance Guarantee. - Exportkreditgarantien.de. (n.d.). Financing options | Federal Export Credit Guarantees. Shipping Guarantee: - Bank of China. (2008, June 27). Shipping Guarantee. - Drip Capital. (n.d.). Shipping Guarantee in Import Export - Meaning, Process & Examples. Payment guarantee: - International Trade Administration. (n.d.). Methods of Payment . Trade.gov. Global Trade Funding. (n.d.). Bank Guarantees For Import Transactions. Foreign Bank Guarantee : - Investopedia. (n.d.). What Is a Bank Guarantee? How They Work, Types, and Example. - Mahanakorn Partners Group. (n.d.). Bank Guarantee Letter & International Guarantees. Mahanakorn Partners Group Credit Security Guarantee : -Department of Enterprise, Trade and Employment (2017). Credit Guarantee Scheme. -Food and Agriculture Organization of the United Nations. (2001). CREDIT GUARANTEES Retention Money Guarantee : - Bank of China. (2023, August 8). Retention Money Guarantee. Bank of China Limited Macau Branch. Group members AHMAD MOHAMMAD FAROOQ KHAN 20030141006 ABDULLATIF AHMED SUBOW 21030141003 AHMED ABDULKAREMALSARORI 19030341024 KHALID SAYED MOARIFYAR 19030241034 Thanks Any questions?
