Unlocking working capital from Bank Guarantees and Letters of Credit.
Organisations may be required to issue various Performance Guarantees in the ordinary course of their business. In which case it is common practice for organisations to use Bank Guarantees and Letters of Credit. In doing so, the organisation may effectively tie up funds to the value of the guarantee. From a treasury perspective, it may be more beneficial to use an unsecured surety facility which does not tie up corresponding funds.
The application for the use of surety bonds has expanded rapidly over recent years, with Surety providers designing solutions for less traditional ‘bondable’ contractual obligations. Surety facilities may be used to support a growing array of guarantee requirements including contractual, i.e. performance bonds; and commercial bond, i.e. deferred consideration to support acquisitions and environmental bonds to support waste handling activities.
- Deductible Guarantees may replace the LOCs under non-conventional employers’ liability and motor programmes
- Deferred Consideration bonds may replace LOCs and escrow accounts in support of acquisition
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