Surety bonds cover an extremely wide range of needs and purposes, especially when it comes to the global exporting industry is no different.
Each year, millions of dollars in product and services are shipped internationally. In order to protect their investments, buyers will often require exporters to acquire a performance bond before finalizing any trade agreements in order to protect themselves in the event of economic damages as well as assurance that they will be compensated if an exporting client does not fully meet the demands set forth in a contractual agreement.
As a global purchaser, if you are unsure of how exactly performance bonds protect you and your assets, the following is everything you need to know.
How do performance bonds protect me?
Performance bonds for exporters, also known as contract bonds, are secured by exporters in order to provide purchasers protection and financial security when it comes to certain projects or transfer of goods.
The amount of coverage will usually vary, but in many cases, the covered cost is part of the exporting contract and relies on three main factors: bond amount, bond type, and applicant’s risk.
In order to ensure full and guaranteed coverage in the event that contractual agreements are not met, insurers will oftentimes require a clearly outlined dispute resolution. Under these policies, coverage is usually anywhere from 80 to 90 percent of the award or the amounted cost in total.
Case Study:
As a new yet profitable specialty exporter, Company Y has worked on many large projects but has yet to work exclusively on government projects.
As a new $4 million opportunity with a government agency has presented itself, a series of payment and performance bonds must be met in order to satisfy a quota of government regulations.
With the help of the right Surety lender, Company Y was able to meet government regulations and provide the necessary Bonds.
In the event that Company Y does not fulfill the terms of the contract, the government agency will have recourse (via the surety bond).
Types of Performance Bonds
Performance bonds can be divided into two categories: default and demand bonds.
A default bond requires that the beneficiary prove that there was a breach of contract that has ultimately caused some type of damage for the bond to be cashed.
A demand bond requires that the issuer pay the required amount in the incident of a breached contract up to a certain amount at any given time.
If you would like to learn more about how performance bonds will benefit your contractual obligations, don’t hesitate to contact us here.
