More about guarantees
More about guarantees
A guarantee entails the bank's irrevocable commitment to pay the beneficiary a sum of money, such that it does not exceed the sum indicated in the letter of guarantee, promptly after the beneficiary has submitted its written claim. There are several types of guarantees, and more than one type can be included in a contract.
Types of guarantees and bonds
- An Advance payment bond ensures repayment to the importer of an agreed percentage of the contract amount (typically 10%-30% of the contract amount) if the exporter does not fulfil its contractual obligations.
- A bid bond (also called a Tender bond) is issued to ensure that the exporter submits realistic bids under the tender process and to protect the importer for any loss that might occur if the exporter fails to sign the contract. A bid bond also assures the importer that the exporter will comply with the terms of the contract in the event that the tender is accepted. Bid bonds are usually issued for 2% to 5% of the tender amount.
- A performance bond safeguards the importer, should the exporter fail to meet its contractual obligations. Performance bonds are usually issued for 10% to 20% of the contract amount but may be fixed by the local law of the importer's country. Obligations under a performance bond could concern supply obligations or obligations concerning function and quality during the agreed period of the guarantee.
- A payment guarantee ensures payment to the exporter if the importer does not fulfil its payment obligations.
- A loan repayment guarantee ensures the repayment of a loan and the payment of the interest.
Other guarantees, which Danske Bank will provide according to your needs.
International rules for demand guarantees
Demand Guarantees are subject to a set of international rules entitled Uniform Rules for Demand Guarantees (URDG) 2010 revision, ICC Publication No. 758.
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