Bonds, Guarantees and Standby Letters of Credit

Tender or Bid Bonds

A Tender or Bid Bond is usually for between 2% and 5% of the contract value, and will guarantee that the Seller will take up the contract if it is awarded. Failure to take up the contract results in a penalty for the amount of the Bond. In addition, the Tender Bond usually commits the Seller and its Bank to joining in a Performance Bond if the contract is awarded. Tender Bonds serve to prevent the submission of frivolous tenders.

Performance Bonds

Performance Bonds guarantee that the goods or services will be of the required standard and a stated penalty is payable if they are not. The amount payable will be a stated percentage of the contract price often 10% but sometimes more. It is usually issued when a Tender Bond is cancelled. The Bonds are purely financial guarantees and carry no warranty that the bank will complete the contract if the customer fails to do so.

Advance Payment Bonds

These give protection to the Buyer who has made an advance or progress payment to the Seller before the contract has been completed. Advance Payment Bonds undertake that the Seller will refund any advance payments to the Buyer if the goods or services are unsatisfactory.

Warranty or Maintenance Bonds

These provide a financial guarantee to cover the satisfactory performance of equipment supplied during a specified maintenance or warranty period.

Standby Letters of Credit

Standby Letters of Credit are frequently used in relation to trading in perishable goods. Standby Letters of Credit are payable against presentation of the Seller's signed certificate stating that payment due in respect of the goods already delivered to the buyer has not been received. Through the Standby Letter of Credit system, Buyer and Seller are able to trade on an open account basis with the Letter of Credit lying dormant in the background as security for the Seller. Standby Letters of Credit are subject to International Standby Practices, referred to as ISP98.

Key Benefits

• Can be drafted, within certain criteria, to suit the particular needs of the Buyer and Seller.
• Can be issued in virtually every country in the world through our extensive correspondent bank network.
• Enables Sellers to develop their international business and Buyers to consider overseas suppliers with a degree of reassurance.
• If you are a Seller, they demonstrate your ability to meet the terms of the contract, backed by your Bank.
• If you are a Buyer, you receive reassurance of the ability of the overseas company to meet the terms of the contract.