In this article, we shall first help you to understand what Advance Payment Guarantee in Kenya is and all there is to know about this topic.
Advance Payment Guarantee is an instrument used by banks for upfront payment on behalf of clients on jobs which are not yet executed.
In other words, this type of guarantee is used to secure the release of payment for mobilisation of a project or contract.
Here the bank becomes liable if, after the collection of the advance monies, the contractor/supplier fails to deliver the project as per the laid terms of the contract.
You are not only assured of better terms of the contract with a payment guarantee, but also you are given more chances to secure tenders.
Customers will also be not only sure of your supply but also sure to receive compensation in case you fail.
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You can only secure an advance payment guarantee if you are a successful bidder.
Advance payment guarantees are used when the suppliers require either full or part of the tender to be financed by the customer before the tender is supplied or shipped.
The buyer, in this case, needs to be protected or assured that the suppliers fail to meet the agreed supply standards or does not supply the goods at all, the upfront costs will not be lost.
This boosts the customers’ confidence in purchasing as they are not afraid of losing the cash.
As with performance bonds, the conditions of the advance payment guarantees must be in line with the contract awarded.
Collateral is also required to be able to issue an advance payment guarantee on behalf of a client.
Advance payment guarantee advantages
1. Provides legal security
APG offers a unique kind of legal security by offering protection to the buyer.
If the entity hired to do the construction fails to complete its workload, the buyer gets a money-back guarantee on their investment.
Also, read about How to bid on construction projects
2. Customer confidence
In case a supplier does not honour the tender agreement, the financier will refund the upfront cost.
You as a business are also confident that you will service the tender to completion without straining because you have available funds at hand.
3. Advanced payment guarantee boosts company profile
To maintain tenders to end with clients grows your portfolio as well as the customer base, which will expand the status of your company both locally and internationally.
Your company will manage to secure more tenders in the future hence grow the business as a whole.
4. You do not guarantee your finances
Your finances will remain just that, personal. An advance payment guarantee does not require any form of a financier.
This means you have two sources of finances, the guarantee as well as your personal finance. What this ultimately means is that you can complete your project without any constraints.
While using this sort of agreement, this means that you will probably complete the deal and service the tender.
Who should consider taking an advance payment guarantee
Entrepreneurs working in several fields are eligible to receive this kind of guarantee.
Listed below are some of the businesses and occupations where benefit the most from having an advance payment bond.
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- Auto dealership bonds
- Construction companies
- Collection agencies
- Durable medical equipment providers
- Health clubs
- Travel agencies
- Public notaries
Advanced payment guarantees may be a solution to many business needs, but they are not always the way out.
You can service a tender without the guarantee as it will increase your profit margins as it reduces your working cost overall.
Taking out an advance payment guarantee depends whether the tender requires it and also your need as a business.
Remember, not all tenders need advanced payment guarantees!