Let's dive into the world of guarantees and explain how companies can use both bank guarantees and insurer guarantees to ensure their financial security.
Bank guarantees
Banks are traditionally the key players in the field of guarantees. They provide financial security to buyers and sellers through letters of guarantee. A bank guarantee is a written commitment by a bank to pay a certain amount to the beneficiary if certain conditions are met. The disadvantage of bank guarantees is that they seize the working capital of a company. This can limit financial flexibility.
Guarantees from insurers
Insurers have become increasingly prominent in the field of financial guarantees in recent years. It is interesting for companies to look into guarantee facilities through insurers, as the working capital will not be affected. This is because the insurer's guarantee facility is not deducted from working capital. In addition, insurers often better ratings than banks, making their guarantees more acceptable. Insurers, unlike banks, fall under the Solvency supervisory framework. This has less stringent requirements than Basel standards for banks, making insurers more attractive for guarantees. And insurers often have more extensive branch networks abroad, allowing them to issue guarantees locally.
Common forms of guarantees
There are a number of common forms of guarantee, such as:
- Offer guarantee/registration guarantee
- Prepayment guarantee
- Performance guarantee
- Maintenance guarantee
- Customs guarantee
- Payment guarantee
Do you face any of these forms? Then a helping hand is at hand. The professionals at Xolv will be happy to show you the way!
