Advance Payment Guarantee

Advance Payment Guarantee

An advance payment Guarantee on behalf of the supplier/contractor to materialize an advance payment in case of a deal.

APG is also called an advance payment bond, where Bank is the issuer and owns the primary obligation (on-demand obligation, indemnity) to pay to the first person (buyer) in case of default by the second person (seller) who fails to provide the goods/services although an advance payment has already been received by him. This bond is required to secure retrieval of the advance payment made to the seller.

Request for advance payment is entertained to enable the contractor to go ahead with the start up or procurement costs/initial expenses that may take place before the actual work under the contract is initiated.

Apply For Advance Payment Guarantee

Relevance of Advance Payment Guarantee .

What Is Advance Payment Guarantee ?

An advance payment bond either may be an on-demand bond (usually it is one) or a conditional bond. In the former case, the payment has to be made immediately on demand, without any excuse, while in case of a conditional bond (or default bond), the payment is liable to be paid when the breach of contract is established.

Advance payment bonds are to be drafted carefully, outlining the set of circumstances for on-demand payments.

The requirement is sent to us by the supplier (Client -A). The letter has to be supported by a MOU /contract between the supplier and the buyer/developer (Client-B). A ‘vesting certificate’ or ‘certificate of vesting’ is required from the seller/supplier ensuring the goods with ready availability, which are mentioned in a list with a pre-condition that these will be transferred from one party to the other upon payment. These materials have to be with insurance and have to be encumbrances-free.

It gives a tentative valuation of the deal being undertaken. It also takes care of any possible mutual mistrust between both parties, despite the presence of a bank as the intermediary and guarantor. It ensures payment of contract price. The indemnity clause also makes the defaulting party liable for penalization.

We require the applicant to hold a valid business license, hold a loan card, an account opening permit and open a settlement account with the bank in question, hold the necessary qualification to engage in relevant business and should possess the necessary credit score.

Benefits of the Advance Payment Guarantee

We draft a service agreement between Client-A and ourselves. We reduce the trouble and expenses of arbitration arising out of any legality.

We proceed to activate the APG with the relevant documents shared by Client – A, in 2 banking days from a well rated Bank, normally a European one.

APG is a prompt payment mechanism to help the deal go swiftly through. The valuation goes down with each payment, with the payment value and the outstanding guarantee value equaling the total value of the APG.

It is used to demand by a buyer for refund in case of a default according to the terms of the agreement. While guaranteeing the supplier, the buyer too also is covered under Advanced Payment Guarantee.

There are three kinds of Bank Guarantee

Performance Bond (PB).

Advance payment Guarantee- APG.

Tender Bid - TBG.

The Process Of Advance Payment Guarantee

Amendment to letter of guarantee is possible on request of the guaranteed party and the beneficiary, such as extension of the validity period. The applicant should be notified in time for a payment requisition, which can be made once the claim is carefully examined by the guaranteeing bank to confirm the documents to be in compliance with the claim clauses of the guarantee..

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