Types of guarantee or bond

As an exporter, you may sometimes participate in international tenders. The tender process often requires that a bidding company provide a guarantee or bond.

Danske Bank offers several different types of guarantees or bonds: bid bonds, performance bonds, advance payment bonds, retention bonds and payment guarantees.​​​​

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Types of guarantee or bond

Types of guarantee or bond Description Examples
Bid bond or tender bond A bid bond is issued to support a customer's tender for a particular contract and to protect the importer from any loss that might occur if the exporter fails to sign the contract. Once the tender is accepted it will normally be necessary to replace the bid or tender bond with a performance bond. Bid bonds are usually issued for 2% to 5% of the tender amount and are usually outstanding until the end of the tender process. Sample bid bond (demand type)

Performance bond 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. Sample performance bond (demand type)

Advance payment bond An advance payment bond ensures repayment to the importer of any advance payments they have made (usually an agreed percentage of the contract amount (typically 10%-30%) if the exporter does not fulfil its contractual obligations.) Sample advance payment bond (demand type)

Retention bond

With the supply of factory plant, machinery and other capital goods, it is often agreed that the buyer may withhold 5%-10% of the contract amount for a period, for example 12 months after the plant or machine(s) are up and running.

The exporter may wish to receive the full contract amount before the end of the contract period (in the example given above, 12 months) by issuing a retention bond that covers the amount that would otherwise be withheld.

The exporter will request its bank to issue a retention bond in favour of the buyer. Once the buyer receives the retention bond he/she will transfer the amount of the bond value direct to the exporter by international money transfer. A retention bond is issued usually for 5%-10% of the contract amount if the contract is not fulfilled the importer can make a demand for the retention amount under the retention bond.

Sample retention bond (demand type)

Payment guarantee

A payment guarantee ensures payment to the exporter if the importer does not fulfil its payment obligations.

A payment guarantee can be issued in the form of an endorsement on a draft, also known as an “aval”.

Sample payment guarantee (demand type)

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