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?