Advance Payment Guarantees assure a buyer that they will be repaid the advanced funds in the event that you fail to complete the contract.
The corresponding bank in the beneficiary's (exporter) country to which an issuing bank sends a letter of credit. The advising bank advises the letter of credit by checking its apparent authenticity and sends it to the beneficiary.
In documentary credit transactions, the importer is known as the applicant. The applicant is responsible for applying to the issuing bank to issue a documentary credit in payment of the goods being imported, services being rendered or security being given.
In documentary credit transactions, the exporter is known as the beneficiary. A documentary credit is issued in favour of the beneficiary. To receive payment, the beneficiary must present documents that comply with the terms and conditions of the documentary credit to a bank where the credit is available (i.e. issuing bank or nominated bank).
Bid Guarantees (Bid Bond)
Bid Guarantees (Bid Bond) are normally required by buyers when they ask for tenders relating to a contract. Bid Guarantees provide assurance to buyers that they will be compensated in the event that you, the bidder, withdraw your bid after submission of the bid and before the expiration of the bid validity period, or you fail to enter into a contract with the buyer after being notified of contract awards, or you fail to establish performance bond(s) in relation to the contract that are acceptable to the buyer.
Bill of exchange
The Canadian Bills of Exchange Act defines a bill of exchange as: "An unconditional order in writing, addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay, on demand or at a fixed or determinable future time, a sum certain in money to or to the order of a specified person, or to bearer." The terms "bill of exchange" and "draft" are used interchangeably where the draft complies with the definition of bill of exchange.
To increase security in a documentary credit arrangement, the beneficiary can request that the credit be confirmed by a Confirming Bank, which is usually located in the same jurisdiction as the beneficiary. Confirmation provides an independent and additional undertaking of payment, provided the beneficiary (exporter) complies with the terms and conditions of the credit.
A bank that performs specific functions for a foreign or local bank in the correspondent bank's jurisdiction. Correspondent banks can be both domestic and foreign. Generally, the correspondent bank provides some kind of service which the originating bank cannot offer, because it does not maintain a physical presence in that location or does not have the capabilities to offer the service.
Documentary Credits minimize the risks for both the beneficiary (exporter) and the applicant (importer). In documentary credits, a bank undertakes to pay the beneficiary, provided that the documents presented evidence that the terms and conditions of the letter of credit have been complied with.
Financial Guarantees provide payment assurance because the bank guarantees payment under certain conditions. This can facilitate common business or personal transactions such as borrowing money, purchase or lease agreements, utility service contracts, and more.
The issuing bank is responsible for checking that the application for a documentary credit submitted by the applicant (importer) is complete, precise and satisfies internal credit approval requirements, and for issuing the documentary credit (subject to the UCP [Uniform Customs and Practice for Documentary Credits] Rules in force at the time of issuance) in favour of the beneficiary on behalf of the applicant.
The nominated bank is the bank nominated and authorized by the issuing bank to make payments on its behalf. Once the beneficiary (exporter) ships the goods and presents the documents to the nominated bank, the nominated bank checks that the documents comply with the terms of the letter of credit and may make settlement as specified in the letter of credit. The nominated bank is not obligated to make settlement against complying documents unless it has confirmed the credit.
The seller sends the documents covering the goods directly to the buyer who then uses the documents to take possession and title of the goods before paying for them. The seller is at risk of having turned over the title of the goods before receiving payment from the buyer. This form of trade implies complete faith on the part of the seller that the buyer will pay at the agreed future time.
Performance Guarantees (Performance Bond)
Performance Guarantees (Performance Bond) provide assurance to your buyers that they will be financially compensated in the event that you fail to adequately complete the contract because the bank guarantees payment under certain conditions. Cross-border Guarantees may help you establish your performance capability and financial integrity without providing your own cash as security to the other party when you enter into an international contract with a foreign party.
Retention Guarantees/Advance Payment Holdback Under Contract Guarantees
Retention Guarantees/Advance Payment Holdback Under Contract Guarantees allow a buyer to hold back payment of 5% to 25% of the contract amount for extended periods after the completion of the project, to ensure performance of post-contractual obligations on the part of the supplier. Should the supplier require cash prior to the end of the holdback period, a guarantee can be issued to ensure the refund of the released funds to the buyer in the event that the supplier does not meet its specified post-contractual obligations.
UCP (Uniform Customs and Practice for Documentary Credits) is a set of universally recognized and internationally accepted rules for documentary credits, published by the International Chamber of Commerce (ICC) that will govern any letter of credit where it is specifically stated to be subject to the UCP. The current UCP rules in force are the UCP 600.
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