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Advance Payment Guarantee

In: The Trade and Receivables Finance Companion

Author

Listed:
  • Stephen A. Jones

    (AXS Trade Finance Ltd.)

Abstract

An advance payment guarantee is used to secure the refund of monies paid in advance of shipment should the goods not subsequently be delivered. Because of the independence of demand guarantees and ease of claim, clause construction is vitally important to mitigate the risk to the applicant of an abusive claim and to manage the credit exposure of the bank in their capacity as guarantor or counter guarantor. This chapter describes how the text structure can reduce the applicant’s risk of a frivolous claim demand, and in the case of a variation in value clause, result in a reducing credit risk exposure during the life of the guarantee. The possibility of the guarantee liability extending over many years is also discussed due to the impact of ‘extend or pay’ demands and foreign laws and usages. The importance of understanding the underlying transaction is emphasised given the text of the guarantee often contains limited information.

Suggested Citation

  • Stephen A. Jones, 2019. "Advance Payment Guarantee," Springer Books, in: The Trade and Receivables Finance Companion, chapter 9, pages 119-130, Springer.
    • Handle: RePEc:spr:sprchp:978-3-030-25139-0_9
    DOI: 10.1007/978-3-030-25139-0_9
    as

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