International Bonds and Guarantees

EENI- School of International Business

Sub-subject: International Bonds and Guarantees. Documentary Collections. Syllabus:

  1. International Bonds (overseas guarantee) and Guarantees
  2. Tender and Performance Bonds
  3. Advance/progress Payment Bond
  4. Retentions and On-Demand Bonds (“Calamity Bonds” or “Suicide Guarantees”)
  5. Other types of guarantees
  6. Managing bonds and guarantees
  7. Bank obligations
  8. Customer liability records
  9. International Chamber of Commerce Rules for the Issuance of Bonds and Guarantees
  10. Factoring and Forfeiting
  11. Invoice discounting
  12. Endorsements
  13. Bills of Exchange
  14. Documentary Collections
  15. Clean Collection. Managing collections

The main objective of this sub-subject is to learn about different types of bonds and guarantees and how they operate.

In this sub-subject the student will:

  1. Learn what types of bonds and guarantees there are and how they operate
  2. Analyse advantages and disadvantages of different types of bonds/guarantees for exporters
  3. Discuss the parties involved and their responsibilities
  4. Examine how banks manage bonds/guarantees
  5. Gain a good understanding of Forfeiting, Factoring, and Invoice Discounting
The sub-subject “International Bonds and Guarantees” is studied...
  1. Master in Foreign Trade and International Marketing
  2. Professional Master's Program in International Business
  3. Diploma in International Trade
  4. Payment methods Course (e-learning)

Languages of study English or French Financement Spanish Financiacion Portuguese Financiamento

Area of Knowledge: Foreign trade.

Sample of the Sub-subject: International Bonds and Guarantees:
International Bonds

Finance of international trade - FOREX

Description of the Sub-Subject (International Bonds and Guarantees):

An overseas guarantee or bond is a written undertaking by a Bank to a foreign party that the Bank will pay a sum of money against a written demand for payment or submission of a document (or documents) stipulated in the guarantee document itself, upon the occurrence of a specified event or events.

The words “guarantee” and “bond” are interchangeable, and no particular relevance is attached to the use of either of these terms.

The importer requests a tender bond when tenders or quotations are invited from sellers/exporters for the purchase or manufacture of products or the management of a project.

The outcome of a successful tender is the award of a contract and some cases, the eventual submission of a performance bond or guarantee.

The conditions of a performance bond or guarantee are sometimes stipulated in a letter of credit opened by an importer in favour for the exporter. In such cases, the letter of credit (LC) does not become operative until the performance guarantee is established in favour for the importer.

An on-demand bond (“Calamity Bonds” or “Suicide Guarantees”) is where the Bank is providing the bond has an obligation to pay upon first demand, if such demand is made literally by the terms of the bond. Many importers (particularly in the middle east) will only accept this type of on-demand bond or “demand guarantee.”

The International Chamber of Commerce first published the Uniform Rules for Contract Guarantees (ICC Publication No. 325) in 1978. The rules are intended to regulate guarantees and cover tender bonds, performance guarantees and repayment guarantees given by banks, insurance companies and other guarantors.

Unlike the UCP 600 for Documentary Credits, the guarantee rules of the International Chamber of Commerce are not broadly used in Central Asia or other parts of the World.

Bonds and Guarantees

Second part: Factoring and Forfeiting

In this part; we will explore export finance products that are growing rapidly. We will explore Factoring, Invoice Discounting, and work through the procedure for a Forfeiting transaction.

In this part the student will:

  1. Become familiar with fundamentals of Factoring
  2. Learn what benefits factoring offers to a growing business
  3. Study fundamentals of Forfeiting
  4. Discuss differences and similarities between Factoring and Forfeiting
  5. What Invoice Discounting is and how it compares to Factoring

Objective: Gain a good understanding of Forfeiting, Factoring, and Invoice Discounting.

Documentary collections

The objective of this part is to understand what Documentary collections are and how they work. Export and import Collections will be analysed.

In this part the student will:

  1. Learn that Documentary collections are a service provided by the Bank whereby the Bank facilitates the settlement of payment between international importers and exporters by a collection of financial and commercial documents
  2. Discover that Collections offer a greater degree of security to the exporter than open account transactions
  3. Understand the operation of
    1. Export Collections
    2. Import Collections

Collections are a service provided by banks to their export and import customers with the objective of payment collection under the structure and security of an internationally accepted body of rules known as URC 522 of the International Chamber of Commerce, Paris, France.

Using collections, banks facilitate the settlement of payment between International importers and exporters. Collections offer a greater degree of security to the exporter than open account transactions.

U-EENI University