Surety bonds and financial guarantees
The placement of bonds or guarantees through the surety market, as alternatives to bank overdrafts, can be beneficial to keep bank facilities available to meet a company’s cash flow requirements. They are written promises to pay for the direct loss and damage suffered by a third party, the beneficiary of the bond. They are issued to protect the beneficiary against breach of contractual obligations by the client.
Many types of bond and guarantee are available for almost any area of risk, subject to the underlying security and risk being acceptable to the guarantor. They can be offered on a one-off or regular basis at more competitive rates.
Performance bond
Indemnity, usually between 10% and 20% of a contract value, to an employer against loss or damage in the event of a contractor or supplier failing to perform to the terms of the contract. These are more familiar to the construction or service industry sectors.
Road & Sewer bond
A guarantee, on behalf of a property developer or house builder, that it will complete the roads and sewers to enable them to be adopted by the appropriate local authority under the relevant Highways Act or Water Industry Acts.
Duty deferment / Custom bond
Duty and VAT are payable immediately on import to the UK at the point of entry. This bond gives any company that imports goods from outside the EU the flexibility to defer payment for a given period. This deferment period provides a tangible cash flow advantage.
Reinstatement bond
This is a bond, usually issued in favour of a local authority or the Environment Agency, which guarantees the restoration of land to agreed standards after work such as quarrying, open cast mining or waste disposal has been completed.
Advance / Stage Payment bond
This is a guarantee, in favour of a customer to provide security for monies which have been paid in advance of the goods or services being provided. This would suit companies of limited liability trading status.
