The risk of issuing an international banking guarantee is allocated to the Foreign Trade Facility you must have in place with us.
Sometimes, our customers or suppliers ask us to guarantee certain situations derived from the purchase/sale of goods or the provision of services. Depending on what we have to guarantee, we will issue a different type of guarantee.
- The vast majority of International Guarantees are issued using the Swift system. A small number of these guarantees are still issued on paper.
- It is important to have a clear understanding of what you want to guarantee in order to define the wording of the guarantee to ensure it meets the needs of importer and exporter. We have templates available for the main types of guarantees in Spanish and English.
Main types of guarantees:
- TENDER GUARANTEE OR BID BOND
This is used to bid for a contract to supply goods or for a civil engineering construction project in a foreign country when the body awarding the contract requires a guarantee from all bidders. The aim is to guarantee that if bidders withdraw or modify their offer, any expenses incurred in checking and processing bids will be covered.
The amount is usually 10% of the bid offer, and such guarantees are usually indefinite, although they will be cancelled once the project or contract has been awarded to one of the bidders.
These guarantees are usually issued with the commitment that, if the contract is awarded, a performance bond will be issued.
- 2. PERFORMANCE BOND
This type of guarantee is issued by an exporter to ensure that, if the goods or service supplied do not meet the requirements set out in the contract of purchase/sale, by executing the guarantee the importer recovers the amount paid to the vendor (up to the total amount guaranteed).
Content can cover the delivery of goods according to the agreed conditions, or it can cover other conditions as well such as installation and repairs during the guaranteed period.
This type of guarantee is usually linked with a documentary credit and is part of its terms and conditions: the exporter receives a documentary credit in their favour, in which one of the clauses states that said credit will not enter into effect until the exporter issues a performance bond in favour of the buyer.
- 3. ADVANCE PAYMENT GUARANTEE
These guarantees are issued when the vendor asks the buyer for an advance payment. The exporter will issue this guarantee, ensuring that, in the event that the vendor breaches the contract, the buyer will be refunded any amounts paid in advance.
The wording of the guarantee itself will normally indicate that it will not enter into effect until the advance payment is received in the exporter’s account.
The amount of the guarantee coincides with the amount paid in advance or on account.
- 4. PAYMENT GUARANTEE
This is issued by the importer to guarantee payment of a purchase made from their supplier, in other words, from the exporter.
Normally, once the guarantee has been received, the exporter will begin manufacturing the goods or they will be sent if they are already in stock, since the exporter can be certain that if their customer does not make payment on the agreed date, by executing the guarantee and meeting the requirements stipulated therein, they are guaranteed to collect payment.
They can also be issued to guarantee payment for a service.
- 5. CREDIT FACILITIES GUARANTEE
This type of guarantee is usually used when a parent company sets up a subsidiary in another country. In that country, the subsidiary is unknown and cannot secure finance. The parent company will issue a guarantee in favour of the subsidiary, taking responsibility for any possible breaches with regard to the finance granted.