International bonds and guarantees. Documentary collections. Finance.

Course summary (International bonds and guarantees):

Factoring and forfaiting. Managing bonds and guarantees. Clean collection. Bills of exchange. Invoice discounting.

The main objective of this learning unit is to learn about different types of bonds and guarantees and how they operate.

In this learning unit you are going to:
- Learn what types of bonds and guarantees there are and how they operate;
- Analyse advantages and disadvantages of different types of bonds/guarantees for exporters;
- Discuss the parties involved and their responsibilities;
- Examine how bonds/guarantees are managed by banks.

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 against submission of a document (or documents) stipulated in the guarantee document itself, upon 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 buyer requests a tender bond when tenders or quotations are invited from sellers/exporters for the purchase or manufacture of goods or for the management of a project.

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

Example of the course International bonds and guarantees:

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

An on demand bond ("Calamity Bonds" or "Suicide Guarantees") is where the bank providing the bond has an obligation to pay upon first demand, if such demand is made literally in accordance with the terms of the bond. Many buyers (particularly in the Middle East) will only accept this type of on demand bond or "demand guarantee".

The International Chamber of Commerce (ICC) first published Uniform Rules for Contract Guarantees (ICC Publication No. 325) in 1978. The rules are designed 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 ICC are not widely used in Central Asia or other parts of the World.


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

In this part you be will:
- Become familiar with fundamentals of Factoring;
- Learn what benefits factoring offers to a growing business;
- Study fundamentals of Forfaiting;
- Discuss differences and similarities between Factoring and Forfaiting;
- What Invoice Discounting is and how it compares to Factoring.

Objective: Gain a good understanding of Forfaiting, 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 your will:
- Learn that Documentary collections are a service provided by the bank whereby the bank facilitates the settlement of payment between international buyers and sellers by collection of financial and commercial documents.
- Discover that Collections offer a greater degree of security to the exporter than open account transactions.
- 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.

By means of collections, banks facilitate the settlement of payment between international buyers and sellers. Collections offer a greater degree of security to the exporter than open account transactions.

Finance of International Trade - FOREX

International, Bonds, Guarantees, Documentary, collections, Finance, Factoring, forfaiting, Managing bonds, Clean, collection, Managing collections, Bills, exchange, Invoice, discounting