Surety bonds, in addition to bank bonds, are a form of security for contractual obligations alternative to cash deposits. Their strength lies in the smaller involvement of the company’s equity/debt. Due to relatively weaker protection, insurers are less inclined to negotiate the levels of bond limits, they thoroughly verify the contents of the bonded contract, and they are unwilling to modify the standard bond form. That is why an experienced broker is indispensable in relationships with the insurers, in order to find the insurer that can offer a bond acceptable to the beneficiary with the best possible total cost. This involves a simple activity that, nevertheless, requires great perseverance, i.e. assuring the Client that the bonds will be issued and delivered to right place at the right time.
Key benefits of surety bonds:
- Replacing cash deposits – surety bonds make it possible to prevent funds from being frozen for many years on accounts of the company’s business partners, directly contributing to the following aspects:
- Improved financial liquidity and financial indexes.
- Improved competitiveness by being able to simultaneously participate in a larger number of tender procedures and perform more contracts than an entity using only cash securities or bank bonds, which also usually take up the credit limit of current accounts.
- No risk of losing the deposit after bankruptcy of the business partner.
- Increased safety and credibility – an entity providing a surety bond has been successfully verified by the insurer, and the content of the bonded contract does not involve excessive risk.
- Lower risk of illegitimate withholding of the security deposit – although the bond is unconditional, the insurer has legal grounds to refuse paying it, which provides additional protection in case of a dispute:
- Failing to comply with the formal requirements indicated in the bond (late claim, submitted in an incorrect form, without signatures of the authorised persons).
- Claim amount verification – in accordance with the surety bond, the insurer may be entitled to asses if the claimed amount is adequate to the extent of the undue performance of the works.
- Protection against groundless bond claims.
- Complete elimination of the risk of failure to refund the deposit after the lapse of the guaranteed period (e.g. due to the bankruptcy of the business partner).
Types of surety bonds:
- tender bonds (guarantee of deposit payment);
- due performance of the contract;
- rectification of defects and faults;
- advance payment refund;
- payment of customs debts and excise bonds in the common transit procedure;
- organisers and travel agents;
- rent payment;
- payment of trade payables – e.g., payment of fuel card liabilities (see also trade credit insurance);
- mortgage brokers.
Benefits of working with Quantum:
- We negotiate proposals with over a dozen insurers in Poland in order to minimise the following:
- bond cost;
- required security;
- risk of failing to obtain a bond with the contents required by the Beneficiary.
- We provide assistance with negotiation of bond contents with the Beneficiary and the insurer in order to find a form that is acceptable to all parties.
- We continuously monitor the use of revolving credit facilities for the bonds and make efforts to ensure that it remains on a safe level.
- We provide tools for online access to key documents and reports.
- We ensure timely circulation of documents.