“My business partner requires that I present a collateral for the performance of the contract.”
Contract bonds are a widely used as collateral for the performance of a contract. A buyer ordering goods or services may require a specific financial guarantee in case the contract is breached, performance deadlines not being met, or the quality of the goods and services being provided is not satisfactory.
When to use contract bonds?
Providing a buyer with a financial collateral for performance of a contract may pose certain difficulties. The working capital which could be used to grow the company’s business and finance other contracts is blocked. Contract bonds are solution to this problem. A bond is a written commitment of the insurer to pay a certain amount to the beneficiary of the bond (the buyer) in the event of the contractor failing to meet its duties and obligations towards the beneficiary of the bond.
Securing every phase of the contract
The entire process of the contract can be effectively covered by a bond, giving the buyer a certainty that the bond will be disbursed should the contractor fail to complete the works in compliance with the contract. Also, bonds confirm a positive assessment of the company’s financial standing by an independent financial institution, thus increasing the entrepreneur’s business credibility.
The bond allows entrepreneurs to participate in a number of tenders without the necessity to deploy their own funds. Bid bond replaces a cash tender deposit, which must be provided when entering a tender proceeding. By issuing the bond to the beneficiary, KUKE takes on the obligation to pay the amount indicated in the bond, in the event that the entrepreneur that has won the tender refuses to sign the contract under terms proposed, or otherwise violates obligations connected with participatingin the tender.
The bond is issued at a request of the entrepreneur who has won a tender secured with a KUKE bond, and is now obligated to present a collateral for a proper performance of the contract. The bond obligates KUKE to pay the beneficiary the amount specified in the bond in the event that the entrepreneur fails to perform the contract, or performs it improperly, and refuses to redress the damages.
Advance payment bond
May be issued at a request of the entrepreneur who, in accordance with a contract concluded with the beneficiary, has received an advance payment towards its performance. Advance payment bond obligates KUKE to pay the beneficiary the amount specified in the bond, in the event of the entrepreneur failing to perform the contract and not returning the advance payment within the stipulated time limit.
The bond is issued at a request of the entrepreneur and obligates KUKE to pay the beneficiary the amount specified in the bond in the event that the entrepreneur fails to perform the warranty obligations specified in the contract, or performs them improperly.
- Bonds secure a wide range of domestic and export contracts.
- Bonds increase company’s credibility in relation to the business partner.
- Bonds relieve entrepreneur of the necessity to provide additional collaterals for the performance of a contract.
- As opposed to bonds issued by a bank, here the company’s credit line is not charged.
- Bonds are the simplest and most reliable form of securing any future claims, ensuring that due funds will be paid to the buyer quickly and unconditionally.