Bank Guarantee for advance payment -What options available to SMEs?

Question posted by Veronica Broomes, on behalf of Executive Solutions Training Ltd in SE13

In addition to UK’s export credit agency -UK Export Finance (UKEF), what are the other avenues that SMEs can use to obtain a Bank Guarantee for Advance Payment?

We won a tender recently to provide consultancy services overseas and need to secure a Bank Guarantee for Advance payment to send to the Client. I've been told about UK Export Finance, but would like to find out from other SMEs about other facilities they may have used to obtain this.

With thanks.
Veronica

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David Bill, on behalf of ChemPlex Ltd in EH48.

The guarantee would be needed by the bank of the the payer (your client) not you.

Hope this helps

David

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David, thank you for the reply.

This request is more the reverse of what you suggested. In this case, the client requires us to have a Bank Guarantee that any payments they make in advance of our company delivering the service will be returned by the bank in the unlikely event we do not deliver the service.

I don't know if you have come across this before, but I understand it can be a condition of some Aid Funded projects for which consultancy services are provided, rather than goods supplied.

Regards.
Veronica

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David Bill, on behalf of ChemPlex Ltd in EH48.

Hi Veronica
Most banks should offer what they call an escrow service. e.g Your bank receives the funds from your customer & holds them in an "escrow "account which neither you or the payer can access until you meet or do not meet predetermined conditions. i.e delivery of the goods etc. The bank should be able to help draw up the escrow conditions.

Hope this helps

David

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David, this is helpful. Thank you for followingup.

Best regards.

Veronica

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Jose Garriga, on behalf of Jose Garriga Abogados in Spain.

Another venue is to pass the costs of the BG to the counterpart, just increasing the numbers in the main contract. Any bank would perform the BG or SBLC, for a reasonable number.

Why would you do that instead of the more profitable public help? Because the bank could offer better margins in future operations as you would be a recurrent client.

You can get better margins in other finance operations- factoring or L/C, et cetera- while you reflect, charge the costs of the BG as any other cost in your contract, either tacitly or expressly.

BR,

Jose Garriga

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Jose, thank you for suggesting another option that could be explored.

Best regards.

Veronica

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Dan Hewitt, on behalf of UK Export Finance in SW1A.

Hi Veronica,

I'm certain you have resolved this by now, however for the benefit of others...

The escrow idea would negate the benefit of receving funds in advance. I'm sure Veronica would love to access them for working capital.

Banks would be willing to offer an Advanced Payment Guarantee, however they will differ in terms of the security they demand, quite often 100% cash security is needed for SMEs. In this case, UK Export Finance can consider offering an 80% guarantee to considerably reduce the security needed from the SME.

To explore this please talk to your business banker or refer to https://www.gov.uk/government/publications/uk-regional-export-finance-advisors

Dan

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