Advance Payment Guarantee or Bond

This short note looks at advance payment guarantee or bonds which are often used in the commercial context.

The use of advance payment guarantees or bonds is widespread and often seen as an important facilitator in securing a successful bid or tender. A buyer that is required to fund given raw materials or initial outlay costs will risk his money on the basis that if something happens to the party submitting the tender or bid (i.e. if it was to default, go out of business…) the buyer would risk losing his initial outlay. Use of an advance payment guarantee or bond here would provide comfort to both parties and if the circumstances outlined above were to arise, the buyer would benefit from being compensated for, at the very least, the amount of its initial outlay.

It is also worth checking the creditworthiness of the party providing the guarantee or bond before you sign up as opposed to when you seek to rely on it!

Izaz Ali ( Izaz is a commercial lawyer who specialises in information technology law and intellectual property law with an emphasis on IT, escrow, online and off-line contracts, and the buying and selling of online businesses.

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