For exporters - can facilitate trading on advance payment terms
For importers - offers protection should the seller fail to fulfil the underlying contract
Eligibility
Creditworthy - bank facilities required
Security
Normal considerations apply
Min/Max Amount
Must be within agreed credit facilities
Min/Max Period
Generally up to 18 months
An Advance Payment Guarantee provides protection for buyers who are asked to provide payment before goods or services are supplied.
Should the seller fail to fulfil their contractual obligations the buyer has recourse to the guarantor to recover any advance payment they have made.
Generally, the guarantee will not take effect until the advance payment has been paid. Terms often allow for partial reductions against the presentation of suitable documents showing that the underlying goods or services have been supplied.
If the seller does not fulfil their obligations, the buyer can make a demand under the guarantee. Guarantees are issued on a full recourse basis, which legally obliges the seller to reimburse the bank (guarantor) for all sums paid.
Typically, Advance Payment Guarantees are issued for values between 10% and 30% of the contract value although negotiations can be held for advances up to 100%.
Advance Payment Guarantees may be required from exporters who are successful in negotiating partial or full payment in advance for goods or services they are supplying.
Advance Payment-Guarantee (SPECIMEN)
We have been informed that …., hereinafter called the SELLER,
and you - the BUYER - have entered into contract No. ….. of ….. ,
concerning the supply of ……
in the total value of ……… .
In accordance with the payment conditions agreed upon, an advance payment amounting to
…….. will be made by you to the SELLER against bank guarantee in the same sum in your favour.
This being premised, we, …………………………….., hereby irrevocably undertake to refund to you without delay on your first written demand an amount up to
……..
(in words: ‘……’)
provided you confirm to us at the same time in writing that the SELLER has not fulfilled his contractual obligations and that you are therefore entitled to demand repayment of the advance payment.
This guarantee only comes into force after receipt of the advance payment amount on account no. ……… of the SELLER with …………………… (Bank Code ……………..) at his free disposal in respect of this guarantee.
Your claim has to reach us through the intermediary of your bankers, confirming to us the authenticity of your signatures and has to be accompanied by our original Letter of Guarantee
no. ……. dated ………….
This guarantee shall expire, even if this document is not returned, on …………., unless your written demand under this guarantee in accordance with the above-mentioned conditions has reached us in …………………. by the end of that day.
This guarantee is assignable only with our consent.
The issuance of this guarantee is permitted according to German law.
All rights and obligations arising from this guarantee shall be governed by German law.
Place of Jurisdiction is ………………….