What are bonds – and how do they work?

Not getting paid is one of the greatest risks you face as an exporter. Your buyer is concerned about the possibility that you will not be able to complete the contract. As a form of insurance, a bond can protect you as well as your buyer.

Export Finance Australia offers a variety of bonds that can help businesses expand their export business or move into the export market.

What are the different types of bonds, and how do you use them?

Bonds for advance payment

Although upfront payments are becoming less common, you might be able to secure an advance payment. Clients will usually require an advance payment guarantee to ensure that they receive their money back if the contract is not completed.

With an advance payment bond, you can use the prepayment from your client to cover labor costs and purchase equipment and materials. You can avoid future cash flow problems. Avionics Group received a 30% advance payment for their project in Hong Kong thanks to our assistance.

Performance Bonds

A performance bond ensures that your company will fulfill its contractual obligations. This could help to give your buyer more confidence and reduce any financial losses you may incur if you are unable to meet your contract’s terms.

A performance bond can help you grow your business. For example, we provided performance bonds to McNally Contracting. The company was able to secure the funds it needed to expand from $20 million projects to $70 million.

We can work with your bank to provide a guarantee for a bond issued by the bank. If you do not have the necessary cash reserves or assets to secure a bank bond, this could be a great option. We can also provide a performance guarantee directly to the buyer.

Warranty bonds

The warranty bond ensures that the buyer is not harmed if you fail to meet your contractual warranty obligations after the contract has been completed.

In industries like construction and engineering, there are often obligations that continue after the contract has been completed. Warranty bonds can be invaluable. For instance, Furnace Solution required a warranty bond to cover its 24-month liability period for the BHP Olympic Dam project.

US Surety Bonds

The United States is the largest economy in the world, with the most diverse population. It offers many opportunities for your business to grow and build your brand. It’s a highly competitive market, and you will need to secure your contract by obtaining a bond.

A US surety bond gives your US buyer confidence that you’ll fulfill the terms of the contract. Export Finance Australia provides eligible exporters a bond issued by Liberty Mutual Insurance, the largest surety in the world. We helped Flovac Sewerage System break into the most exciting international export market. Our support has helped the company to build its reputation in America and also increase awareness of its unique capabilities in Australia.

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