Global trade can be financed with a ‘Performance Bond (PB)/Performance Guarantee Bond (PG)/ Bid Bond/Surety Bond’, which is issued on behalf of the supplier/seller/ exporter, and in favor of the buyer. The buyer can impose any penalty on the seller in case of a default /nonperformance according to terms outlined in the contract.
In the form of a ‘surety bond’, a performance bond is a tripartite contract(issuer, principal and the oblige) which brings financial guarantees usually offered by insurance companies to ensure the completion of the project in question even though the executor has been unable to deliver.
The issuer of a surety bond, takes the guarantee of the principal (who becomes the guarantor) to give the enforced promise to the obliged (the project owner who is expecting delivery by the issuer).