Advance Payment Guarantees
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.